June 25, 2012
Caryn Callahan, Ph.D.
As a manager, economic principles are an important part of everyday business decisions. In this paper the concepts of the market equilibrating process will be discussed, as well as the following components: law of demand and the determinants of demand, law of supply and the determinants of supply, efficient market theory, surplus, and shortage.
When working on the Capstone business simulation in an undergraduate class I had the opportunity to experience how the market equilibrating process affects a business. Equilibrium price is when the quantity demanded by consumers is the same quantity that firms are willing to supply of a good or service. The market equilibrating process related to my experience with the Capstone, because the assignment was to create a successful company. My team/company decided that a successful company would have to be able to reach the point of equilibrium and maintain it. There are five supply determinants and five demand determinants that we should have considered when building our Capstone company in order to reach the point of equilibrium. The only demand determinant we considered was consumer preferences. We should have considered the other determinants: income, prices of related goods, consumer expectations about future prices and incomes, and the number of potential consumers. The supply determinant we considered was production costs. We should have taken into consideration the determinants of: technological advances, prices of related items, expectations about future prices, number of suppliers. By taking these determinants into consideration we could have kept from experiencing a shortage/stock out in our 2nd week of business, where we were unable to meet the demands of our consumers. Our 4th week of business we increased our supply slightly, and the demand increased as well, so we had a...