Market Equilibration Process Paper
Law of Demand
Other things equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls. Demand shows the quantities of a product that will be purchased at various possible prices, other things equal. In short, there is a negative or inverse relationship between price and quantity demanded. Economists call this inverse relationship the law of demand (MCConnell, Brue, & Flynn, 2009, p. 47). Basically, this means less is bought at higher prices, and more is purchased at lower prices. An example of the law of demand is how airlines respond to higher oil and jet fuel prices. Airlines needed to figure a way to buy less fuel but still offer the same number of flights. Airlines did this by buying more fuel-efficient planes; which made it possible to buy less fuel, devised a plan to fill all seats or at least more than previously, and changing operations to improve efficiency. The result was raised seat-miles per gallon from 55 in 2005 to 60 in 2011 (Amadeo, 2014).
Unfortunately, all other things were not equal during this time period, demand for jet fuel was further narrowed because the income of airlines also dropped at the simultaneously. The Global Financial Crisis and 2008 financial crisis meant that travelers not only needed but were also left with no other choice but to cut back on their demand for airline travel (Amadeo, 2014).
Determinants of Demand
There are five main determinants of demand in reference to market demand:
Tastes and Fashions: Tastes and fashions change and are also affected by advertising, trends, health considerations etc.
Population: The size and makeup of the population affect demand. If there is a growing population more food is demanded.
Income: As people’s income rises demand for goods and services rise too. Goods which obey this rule are called - Normal Goods.
Expectations of future price changes: If people expect prices to rise in the near future they will try to beat the increase by buying early
Other things equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls. Demand shows the quantities of a product that will be purchased at various possible prices, other things equal. In short, there is a negative or inverse relationship between price and quantity demanded. Economists call this inverse relationship the law of demand (MCConnell, Brue, & Flynn, 2009, p. 47). Basically, this means less is bought at higher prices, and more is purchased at lower prices. An example of the law of demand is how airlines respond to higher oil and jet fuel prices. Airlines needed to figure a way to buy less fuel but still offer the same number of flights. Airlines did this by buying more fuel-efficient planes; which made it possible to buy less fuel, devised a plan to fill all seats or at least more than previously, and changing operations to improve efficiency. The result was raised seat-miles per gallon from 55 in 2005 to 60 in 2011 (Amadeo, 2014).
Unfortunately, all other things were not equal during this time period, demand for jet fuel was further narrowed because the income of airlines also dropped at the simultaneously. The Global Financial Crisis and 2008 financial crisis meant that travelers not only needed but were also left with no other choice but to cut back on their demand for airline travel (Amadeo, 2014).
Determinants of Demand
There are five main determinants of demand in reference to market demand:
Tastes and Fashions: Tastes and fashions change and are also affected by advertising, trends, health considerations etc.
Population: The size and makeup of the population affect demand. If there is a growing population more food is demanded.
Income: As people’s income rises demand for goods and services rise too. Goods which obey this rule are called - Normal Goods.
Expectations of future price changes: If people expect prices to rise in the near future they will try to beat the increase by buying early
References: Amadeo, K. (2014). Law of demand: definition, explained, examples: law of demand explained using examples in the U.S. economy. Retrieved from https://www.useconomy.about.com/od/demand/a/aLaw-of-Demand.htm MCConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, Problems, and Policies (18th ed.). Retrieved from The University of Phoenix eBook Collection database.. Beggs, J. (2014). The determinants of supply. Retrieved from http://economics.about.com/od/supply-and-the-supply-curve/ss/The-Determinants-Of-Supply.htm Efficient Market Theory.InvestorWords.com. (2014). Retrieved from http://www.investorwords.com/1672/Efficient_Market_Theory.html Mishkin, F. S. (1978). Efficient- Markets Theory: Implications for Monetary Policy. Brookings papers on economic activity, (3), 707-752. Boundless. “Impacts of Surpluses and Shortages on Market Equilibrium.” Boundless Economics. Boundless, 03 Jul. 2014. Retrieved 29 Nov. 2014 from https://www.boundless.com/economics/textbooks/boundless-economics-textbook/introducing-supply-and-demand-3/market-equilibrium-48/impacts-of-surpluses-and-shortages-on-market-equilibrium-180-12278/