Eco/561 Market Equilibration Process Essay

609 WordsDec 12, 20123 Pages
Market Equilibration Process ECO/561 2012 The market equilibration process explains what occurs when consumers and sellers make decisions in an efficient market (McConnell, Brue, & Flynn, 2009). Buyers and sellers own most of the resources in the market and compete to obtain what they want. The efficient markets theory speculates that buyers and sellers are on an even playing field when trading assets and no one has an advantage over the other to make a profit based on analysis and prediction (Efficient markets hypothesis, 2012). Possessing an understanding of economic principles is necessary for entrepreneurs when making essential business decisions. The objective of this paper is to clarify the market equilibration process and…show more content…
55). Products priced below equilibrium price cause a shortage of supply because of an increase in demand for lower priced assets (McConnell, Brue, & Flynn, 2009, p. 55). Market Equilibration Process and House Prices The housing market illustrates a good example of the market equilibrium process. According to the law of demand, as home prices fall, the demand will increase, and when prices rise, the demand will decrease. The law of supply indicates that as prices rise, supply will rise, and as prices fall, supply will decrease. America’s 2008 recession brought on “falling home prices and tight credit; state- and local-government cuts; higher oil prices that stood in the way of economic growth (“Back from the,” 2012). The price of homes dropped significantly pushing the equilibrium price down resulting in a shortage and an increased demand for houses at lower rates. When this occurs, suppliers are motivated to start producing fewer homes until a new market equilibrium price and quantity are achieved. After America’s recovery in 2009, suppliers slowly began to produce more homes and since that time, house prices have gradually increased (“Back from the,” 2012). References Back from the cliff. (2012, November). The Economist. Retrieved from Efficient markets hypothesis. (2012). In Oxford reference. Retrieved from

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