Market Equilibrium Process

Topics: Supply and demand, Economic equilibrium, Economics Pages: 6 (864 words) Published: July 13, 2015


Market Equilibrium Process
Nefertiti McDonald
Eco 561
Professor Somerset

Introduction
In today’s economic culture, there is currently a huge significance in being able to analyze or understand the state of the economy to which we live in. Being that I spend money in today’s market I would like to think that the economic market is stable enough to return back to me in one form or another. One could always tell when a market is at its weakest of points. There are grave numbers of job loss or retention of employees, gas prices continuously rise, financial corruption are more present and recognizable. All of these things play a key role of individuals encountering equilibrium. Investopedia defines equilibrium as “the state in which market supply and demand balance each other and, as a result, prices become stable” (Investopedia) Recently within the U.S gas prices in some parts of the country went down in pricing to $1.89-$2.24 causing the demand to go up significantly. This situation would have been described as market equilibrium process according to economist or hitting a jackpot to the average working Joe. Hopefully, after reading this paper, there will be a better understanding on how the market equilibration process is applied to one’s everyday life. Market Process Equilibrium

It has been both tested and verified in many financial markets that high prices reduce demand but still encourages suppliers to produce. When there are lower prices the demand increase steadily but turns off the need to further supply. “In a free market there will be a single price which brings demand and supply into balance, called equilibrium price.” (Economics Online) Market process equilibrium and equilibrium price are often referred to as being very similar facets used in an economy for survival.

At the equilibrium price the exact quantity that producers take to market are purchased in full by consumers, and there will be nothing ‘left over’. This is very similar to market process as it further proves pricing to be efficient because there is neither an excess of supply and wasted output, nor a shortage – the market will close evenly with no gains or losses on either side. This is also a central feature of the price mechanism, and one of its significant benefits. The establishment of equilibrium

If you were to put supply and demand on a graph it could be argued that if demand was seen contracting inwards along the curve that supply would exceed demand. Also if demand were to extends outwards along the curve that demand would exceed supply. Both of these changes are called movements along the demand or supply curve in response to a price change. Demand contracts at higher prices and will eventually discourage consumers not to further require the goods or services. When demand extends the curve at lower prices the change in pricing will elevate the current demand.

Supply is quite different then the rule for how expectations are met on both the parts of the consumer and the supplier. When prices tend to escalate or are outside of the curve, the need for replenishing supply shall always be greater than the demand. A supplier is looking at the terms of increased revenue, and profits which propels the opportunity cost to be lowered as a result of supplying more good or services. “Lower prices discourage supply because of the increased opportunity cost of supplying more. The opportunity cost of supply relates to the possible alternative of the factors of production. (Economics Online) The principles of economics help us understand how it is that economies of society and individuals function. Something to consider is how it is that people make decisions or choose products. The main factor to consider is the cost of the product or product to obtain. To satisfy a specific need is necessary to evaluate the cost and benefit that will be obtained from it. At the end the end user of a product will determine when he wants...


References: Works Cited
Economics Online. (n.d.). Equilibrium. Retrieved May 17, 2015, from Economics Online: http://www.economicsonline.co.uk/Competitive_markets/Market_equilibrium.html
Investopedia. (n.d.). Definition of Equlibrium. Retrieved May 17, 2015, from Investopedia: http://www.investopedia.com/terms/e/equilibrium.asp
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