How organizations maintain a balance between supply and demand determines market equilibrium. Market equilibrium is when the quantity demanded equals quantity supplied (McConnell, Brue, Flynn, 2009). Prior to understanding market equilibrium an exploration of supply and demand needs to occur. In addition, surplus and shortage along with market efficiency each have an effect on market equilibrium. Demand
The law of demand refers to the relationship between price and demand. “Other things equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls” (McConnell, Brue, Flynn, 2009, p 47). Price is not the only factor to affect demand. The other factors are referred to as determinants. The five basic determinants of demand are consumers’ tastes (preferences), the number of buyers in the market, consumers’ incomes, the prices of related goods, and consumer expectations (McConnell, Brue, Flynn, 2009). When there is an increase in demand the demand curve moves to the right and when there is a decrease the demand moves left (McConnell, Brue, Flynn, 2009). Supply
The law of supply refers to the relationship between price and quality supplied. The law of supply indicates that as price rises, the quantity supplied rises; as price falls, the quantity supplied falls (McConnell, Brue, Flynn, 2009). Supply can also be affected by other factors. The six basic determinants of supply are resource prices, technology, taxes and subsidies, prices of other goods, producer expectations, and the number of sellers in the market (McConnell, Brue, Flynn, 2009). When there is a change in one or more of these supply determinants it will cause the supply curve for that product to shift either left or right. When the supply curve shifts to the right it signifies an increase in supply and when a shift to the left occurs it indicates a decrease in supply (McConnell, Brue, Flynn, 2009). Shortages and Surpluses...
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