Market Equilibrium Process Paper

712 Words Mar 24th, 2013 3 Pages
Market Equilibrium Process Paper
Ronald S. Albergo
ECO 561
2/11/2013
Kevin McKinley

Introduction
Understanding how market equilibrium is maintained is essential for business managers. As a manager, it is important to consider how economic principles, and specifically supply and demand, are as a part of everyday business decisions. In the following paragraphs there will be a description of the economic concepts of supply, demand, and market equilibrium and discuss their relationship to real world examples.

Demand
According to McConnell, Brue and Flynn (2009) “demand is a schedule or a curve that shows the various amount of a product that consumers are willing and able to purchase at each of series of possible prices during a
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The law of supply is the relationship between the quantity supplied rising and the quantity supplied dropping. A supply schedule shows us that all things being equal, companies will produce and offer for sale more of their product at a high price than at a low price. The 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.
For an example of how determinants affect supply. Prices of other goods; companies that produce a particular product. Let’s use the world’s foremost shoe retailer Nike as an example. Nike produces tennis shoes, but sometimes uses their plant and equipment to produce alternative goods, like headbands and sweatpants. If the competitors’ price of these “other goods” is higher that may entice Nike to switch production to those other goods in order to increase profits.

Market Equilibrium
Equilibrium price or marking clearing price is the price where the intentions of buyers and sellers match. According to McConnell, Brue, and Flynn it is the price where quantity demand equals quantity supplied (2009). Competition among buyers and sellers drives the price to the equilibrium price; once there, it remains unless it is subsequently disturbed by changes in demand or supply (p. 55). When quality supplied exceeds quantity demanded this is known as surplus. Surplus drive prices down. When quantity demanded exceeds quantity supplied it is a