February 15, 2011
Market Equilibrating Process Paper
The principles of economics influence people’s lives every day. Consumers make purchases driven by need for food, gasoline, and a myriad of other goods and services to sustain their daily lives. Economists have made a career developing theories attempting to quantify the rationale of consumption. This paper will attempt to describe the most common principles of economics. These principles include the law of supply and demand, market equilibrium, surplus and shortage, and Efficient Markets theory. Further, these concepts will attempt to show correlation between supply and demand along with the business or investment decisions derived from these doctrines. Law of Demand and the Determinants of Demand
The two most basic ideologies of economics are the laws of supply and demand. The law of demand states, there is an inverse relationship between price, and the quantity sold with all things held constant (McConnell, Brue, & Flynn, 2009, p. 47). The constant or ceteris peribus is a rule that is applied to compare price and quantity without influences from other factors in the market (McConnell, Brue, & Flynn, 2009, p. 47). Conversely, the determinates of demand are price, income, related goods, tastes, and expectations (McConnell, Brue, & Flynn, 2009, p. 48). A last consideration would be the number of buyers, however; this would be more closely correlated with the market. My interest as an investor lies in demand for stock of a company because price and quantity are key considerations with respect to potential appreciation and liquidity. Law of Supply and the Determinants of Supply
The law of supply states, there is a direct relationship between price and quantity with all things being constant (McConnell, Brue, & Flynn, 2009, p. 51). Determinants of supply are price, input price, technology, and expectations. The input price would...