University of Phoenix
Market Equilibrium is the point where buyers and sellers agree on the price and quantity of resources demanded and supplied. I will explain how the market equilibrium changed a golf course into the place where in now live.
Sowell (2004) stated, “British economist named Lionel Robbins gave the classic definition of economics: Economics is the study of the use of scarce resources which have alternative uses.” (p. 1). Resources consist of land, labor, and capital and consumers choose how to use them. Consumers decide whether a limited resource such as a mined metal becomes a golf club or part of an automobile by acting in their rational self-interest to increase their utility or satisfaction obtained from consuming a good or service (McConnell, 2009). Prices effectively allocate how scarce resources are used. As Sowell (2004) stated that prices “act as a powerful incentive to cause supplies to rise or fall in response to changing demand” (p. 19). Prices ration resources and provide for their efficient allocation. The market equilibrium price is the price where the quantity demanded equals quantity supplied (McConnell, 2009). The land on which my house is located was once a golf course. Like land everywhere, there is a fixed and finite supply of land in Brownsburg, Indiana. However, the land can be used for farming, commercial and consumer development, and even golf courses. In early 2002, consumers maximizing their utility decided that the best use of this land was a golf course. Shortly thereafter, the demand for land increased. Consumers wanted to build new houses and they needed lots on which to build them. The demand curve for consumer land development shifted to the right. The market equilibrium price of land moved up the supply curve and increased. The increase in the price gave the owner of the golf course an incentive to sell it. Developers saw the increase in...