econ
Market Equilibrium Process
Katie Le
ECO/561
August 31, 2014
Professor Kate Stowe
Market Equilibration Process
Equilibrium can be defined as a state where the demand and supply balance one another and that in result stable the prices. The current economic situation causes a state of disequilibrium in housing industry. Because of the economic condition, people are losing their jobs or they are not receiving enough pay so it becomes difficult for the people to purchase a house.
This paper will explain about the market equilibrium of housing industry and how the changes in supply and demandresulted in disequilibrium. Before 2005, the prices of homes were increasing dramatically, which leads to an decrease in supply, but increase in demand. Homeowners were looking ways to obtain loans from lenders. People were turning over properties anticipating the market to continue to blast. But after the economic crisis many of the people lost their jobs. Banks also were reluctant to give loans and it became difficult for the people to afford the house. Soon the market failed, and the price of houses declined. Soon after, houses went into foreclosure and the demand for buying a house is decreasing while supply was higher. There was a downpour of small sales and foreclosures. People lost their jobs and families started to rent instead of buying a house. Adjustments in the cost of homes are more significant to gain the market equilibrium rather than the reduction in the price.
Supply
Investopedia defines supply as “how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price” (Heakal, 2014). The law of supply states that as the price rises, the quantity of supply rises; if the price fall the quantity of supply fall. The determinants of supply are technology, resources, number of sellers in the market, taxes, prices, subsidiaries, and
Katie Le
ECO/561
August 31, 2014
Professor Kate Stowe
Market Equilibration Process
Equilibrium can be defined as a state where the demand and supply balance one another and that in result stable the prices. The current economic situation causes a state of disequilibrium in housing industry. Because of the economic condition, people are losing their jobs or they are not receiving enough pay so it becomes difficult for the people to purchase a house.
This paper will explain about the market equilibrium of housing industry and how the changes in supply and demandresulted in disequilibrium. Before 2005, the prices of homes were increasing dramatically, which leads to an decrease in supply, but increase in demand. Homeowners were looking ways to obtain loans from lenders. People were turning over properties anticipating the market to continue to blast. But after the economic crisis many of the people lost their jobs. Banks also were reluctant to give loans and it became difficult for the people to afford the house. Soon the market failed, and the price of houses declined. Soon after, houses went into foreclosure and the demand for buying a house is decreasing while supply was higher. There was a downpour of small sales and foreclosures. People lost their jobs and families started to rent instead of buying a house. Adjustments in the cost of homes are more significant to gain the market equilibrium rather than the reduction in the price.
Supply
Investopedia defines supply as “how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price” (Heakal, 2014). The law of supply states that as the price rises, the quantity of supply rises; if the price fall the quantity of supply fall. The determinants of supply are technology, resources, number of sellers in the market, taxes, prices, subsidiaries, and
References: Heakal, R. (2014). Economics Basics: Supply and Demand | Investopedia. Retrieved from http://www.investopedia.com/university/economics/economics3.asp McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, problems, and policies (18th ed.). Boston, MA: McGraw-Hill Irwin.