Market_Equilibration_Process_Paper

Market Equilibration Process Paper Billy Mac University of Phoenix ECO/561 Economics June 13, 2011 Market Equilibration Process Paper The marketing environment is dominated by the relationship between supply and demand. Demand is the quantity of a product desired by customers, i.e. according to McConnell “Demand is the amount of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time” (2009, p. 46). The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded (Administrator, 2009). The law of supply demonstrates the quantities that will be sold at a certain price; but unlike the law of demand, the supply relationship shows an upward slope (Administrator, 2009). When supply and demand are equal to one another then price is in equilibrium. Increase In Demand An increase in demand would raise the price of the equilibrium and have an impact on the quantity. For example, the sporting industry deals with price increases after a team wins a championship. If a player is arrested and goes to prison then consumer demand will lead to the purchase of that player’s merchandise. Increase In Supply The market equilibrium theory predicts that as supply increases and the equilibrium price will decrease. Decrease in supply will lead to an increase of price. For example, examining the cost of oil in the United States and Saudi Arabia, the price of oil is more in the States because Saudi Arabia has a bigger supply of oil. As a result, the supply will always be greater than the demand in Saudi Arabia because the oil is abundant there. Efficient Market Theory The Efficient Market Theory refers to those who participate in the market having the ability to receive information when it is available. Advocates of the efficient market believe that the stock market yields the best information. The information that is presented via the stock market is available to all investors. The price of stock is reflective of the goals and expectations of those who choose to invest. Shortage occurs when the quantity demanded is greater than the quantity supplied. For example, if a company releases a set number of products and the consumer demanded is high then shortage will occur. This usually happens when items or products sell out and consumers have to pre-order items. Surplus is the exact opposite. Surplus occurs when quantity supplied is greater than the quantity demanded. Surplus usually occurs with automobiles, retail sales and more. The byproduct of surplus is the inclusion of more sales to get rid of the excess supplies. References Administrator. (2009). Supply and Demand. Retrieved on June 13, 2011 from http://physicsarchives.com/index.php/courses/992 McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, problems, and policies (18th ed.). Boston, MA: McGraw-Hill Irwin.