Market Equilibrating Process

Deadlines Possessing an understanding of how market equilibrium is maintained is essential for one who desires to become a business manager. As a business manager, it is Important to understand how economic principles, and specifically supply and demand, are a part of one’s everyday business decisions. Relating these concepts of the market equilibrating process to ones prior experiences in a free market should be discussed.

One must consider the law of demand, the determinants of demand, he law of supply, the determinants of supply, the efficient markets theory, surplus, and shortage. Market Equilibrium Market Equilibrium is the mechanism used to adapt to changes in the market place while adjusting supply and/or demand to meet at a place where the willing buyers and the willing sellers are matched at a price and quantity that satisfies both groups.

One can classify this as the condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers. This price is often called the equilibrium price or market clearing price and will tend not to change unless demand or supply change. Law of Demand The Law of Demand is a microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service Will decrease and vice versa.

There are three main assumptions of the Law of Demand: There should not be any change in the tastes of the consumers for goods, the purchasing power of the typical consumer must remain constant, and the price to all other commodities should not vary. Law of Supply The Law of Supply is a microeconomic law that states, all other factors being equal, as the price of a good or service increases, the quantity of goods or services offered by supplier’s increases and vice versa. This means that the higher the price. The higher the quantity supplied.

Producers supply more at a higher price because selling a higher quantity at higher price increases revenue. If demand is held constant, an increase in supply leads to a decreased price, while a decrease In supply leads to an Increased price. Efficient Market Theory The Efficient Market Theory states it is impossible to “beat the market” because stock arrest efficiency causes existing share prices to always incorporate and reflect all ‘Off their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices.

Surplus and Shortage If the market price is above the equilibrium price, quantity supplied is greater than quantity demanded, creating a surplus. If the market price is below the equilibrium price, quantity supplied is less than quantity demanded, creating a shortage. Conclusion Understanding how market equilibrium is maintained is essential for one who series to become a business manager. It is an important for managers to understand how economic principles, and specifically supply and demand, are a part of one’s everyday business decisions.

Relating these concepts of the market equilibrating process to ones prior experiences in a free market should be discussed. One must consider the law of demand, the determinants of demand, the law of supply, the determinants of supply, the efficient markets theory, surplus, and shortage.