Market_Equilibrium_Process_Paper

ECO/561 Economics: Assignment Week 1: Market Equilibrium Process Paper Fatorma Bolley Course: ECO/561 Economics May 13, 2010 Market Equilibrating Process Paper This paper discusses market equilibrating process in relation to life experience. Equilibrium price, equilibrium quantity, surplus, shortage and changes in supply and demand and how these changes impact equilibrium are also discussed. A market in my personal opinion is a place where people buy and sell goods and services, and it could be under a roof or virtual. According the Adams Complete Investment & Finance dictionary, market is a specific location where securities are traded. ”The vast network-voice and data-of securities dealers, brokers, traders, investors and speculators who are actively trading with each other,( Adam Dictionary, 2009). McConnell et all, started market bring together buyers (demanders and sellers (suppliers) and they exist in many forms, (McConnell, Brue, & Flynn, 2009). What Is Equilibrium' Equilibrium is the state of balance between demand and supply. McConnell et all explained, equilibrium price (or market clearing price) is the price where the intentions of the buyer and seller match. “It is the price where quantity demanded equal quantity supplied” (McConnell, Brue, & Flynn 2009 p.54). When market is in equilibrium there is neither a shortage nor a surplus. Surplus is excess supply and shortage is when quantity demanded exceeds quantity supplied. The equilibrium price is the price where quantity demanded equals quantity supplied. In turn, equilibrium quantity is the quantity demanded and quantity supplied at the equilibrium price in a competitive market, ( UOP, 2009). Factors That Influence Equilibrium In an effort to relate this paper to personal experience, I will consider my gasoline consumption patterns. Many factors can influence the prices that consumers pay for gasoline at the pump everyday. Organization of Petroleum Exporting countries, OPEC’s influence on crude oil prices is significant, although the success of OPEC as a cartel has varied over time. To begin with a case example, a pipeline rupture that significantly reduced gasoline supplies in Phoenix, Arizona in August 2003, (Arizona Daily Star 21, 2003), However, the price of gasoline is driven by many other factors, including supply-and-demand factors, the cost of crude oil and various government regulations, Wall Street speculators among others, (http://www.fwbusiness press.com). The quantity of gasoline that consumers demand depends greatly on what kind of vehicle transportation they drive and on the amount of time they are driven. Vehicle ownership and driving patterns are for the most part fixed; which means, so no matter the price of gasoline the quantity that is demanded would not change much. However, supply for gasoline could decrease; which can cause a shortage of supply, as a result of provoked war fears and oil supplies cutbacks. Looking back, is what happen shortly after September 11, 2001, price of gasoline plummeted which was provoked due to the believe that these attacks were to cause war between Muslim societies and caused producers to withdraw some of their oil from current markets. Once fear of war declines the supply curve of gasoline returns to its earlier position. The subsequent gasoline shortage led to sharply increased gasoline prices, which then fell gradually over the next six weeks. This event illustrates several of the competitive dynamics at work in gasoline markets. According to McConnell et all, A decrease in supply and increase in demand would cause an increase in price. This effect in turn would also increase the equilibrium price greater than that caused by either change separately, (McConnell, Brue, & Flynn, 2009). But its undetermined on what effect it would cause on the equilibrium quantity. This would depend on the relative sizes of the changes in supply and demand; which the equilibrium quantity would decrease if the decrease in supply were larger than the increase in demand. On the other hand, the equilibrium quantity will increase if the increase in demand is greater than the decrease in supply, (UOP, 2009). Evidently, equilibrium price and quantity of gas can change due to changes in demand or supply. Gasoline for now will remain to be a necessity for a vehicle owner and in order to have the availability to commute. With this being said no matter the price of gasoline the quantity that is demanded will never change much as long as the need is there. Conclusion: Personal Experience In conclusion, I will state that my overall wiliness to pay for gas at certain price depends deeply in part on large varieties of factors, such as price, my disposable, income, the existence of substitutes, among others. Equilibrium price and equilibrium quantity as demonstrated on the graphs below are the points where the demand curve intersects the supply curve. The changes in the price gasoline have not kept pace with change in my income. In the graph below on the left, illustrates when market price for gas was $2 I could afford 30 gallons which was fill tank for me for a week commute. As the gas price increased to $3 my equilibrium quantity has now 20 become gallons. This is simply a movement along the demand curve, where I have change quantity demanded due to changes in price that I have no control over. My once a week commute on Thursday for this class from Trenton to Philadelphia driving has now being substituted by commuting by public transit. The graph on the right illustrates my equilibrium point for me in 2008 and the graph on the left shows the change in equilibrium price and quantity in 2010. As shown above there is only one price level at which quantity demanded is in balance with the quantity supplied, and that price is the point at which the supply and demand curves cross. References Bonham, Howard B., CFA – Adams Complete Investment & Finance Dictionary. Adam media, Avon Massachusetts, (2001) McConnell, Campbell R., Brue, Stanley L., Flynn, Sean M. Economics Principles and Policies. University of Phoenix eBooks (2009), MBA/561. Chapter 3. Retrieved on May 13, 2010, from Web site. https://ecampus.phoenix.edu/classroom/ic/classroom./aspx