Market Equilibrium Process

The equilibrium price changes when there is a shift in either supply or demand. The market is made up of two basic groups, households and businesses. These two units buy and sell goods and services from and to each there. The market system uses competition among buyers and sellers to regulate the price of available goods and services. Theoretically, this insures that no one buyer or seller will be able to monopolize the market because others can come in and undercut the price.

Supply and demand are affected by changes in consumer preferences, number of buyers in the market, consumers’ incomes, the prices of related goods, and consumer expectations. The economy is currently in a recession, or depression depending on whom you ask, that has greatly affected these determinants of demand. Many industries and individual consumers have seen a steep decline in income due to this market low period. The recession has had a significant affect on the construction industry in which this author currently works.

There is currently a surplus of commercial and residential properties on the market. This surplus discourages businesses from starting new construction projects. This has led to businesses reducing their workforces which has in turn led to consumers reducing their spending and has become a circle of lower buying and selling. The construction industry was not the only one affected by this cycle. Nearly all industries that depend on consumers discretionary funds, those not spent on necessities, were affected.

Large manufacturers that have been around forever went bankrupt and small companies everywhere suffered the same fate. The United States economy is market based. Sellers and consumers are free to trade in any way that works for them with relatively little interference from government. This system allows the price of products and services to be set by supply and demand and determines the allocation of limited resources. Suppliers and consumers are connected in a circle of buying and selling, and when there is a major shift in the economy all can be affected.