August 1, 2012
Market Equilibrium Process
Managers must understand the market equilibrium process to make a proper determination on their products. In this paper this author will analyze the law of demand, determinants of demand law of supply, determinants of supply, market equilibrium, changes in equilibrium, Kellogg’s equilibrium analysis, efficient market theory, and surplus and shortage. Law of Supply and Demand
In business there must be a way to determine what price to put on a product. This is done by determining the demand for a product along with the supply available. The law of demand states that as price goes up the quantity demand must go down and similarly, law of supply states price goes up quantity supply must go up (McConnell, Brue, & Flynn, 2009, p.47). A business owner does not set the demand for their products, the market does. To find out the demand there are factors that can and do affect purchases theses are called determinants of demand. Some of the factors are consumer tastes, number of buyers in the market, income of consumers, the prices of related goods, and consumer expectations (McConnell, et al, 2009, p.48). A shift to the right is an increase in demand; a shift to the left is a decrease in demand. A change in demand is different from a change in the quantity demanded, the latter being a movement from one point to another point on a fixed demand curve because of a change in the product’s price. Some factors for determinants of supply are change in resource prices, change in technology, change in taxes and subsidies, change in prices of other goods, change in producer expectations, and change in the number of suppliers (McConnell, et al, 2009, p.54) Market Equilibrium
When determining the market equilibrium we are looking for the equilibrium price and equilibrium quantity. The equilibrium price is the price where the intentions of buyers and sellers match. This is the price...