Marquet Equilibrium

In: Business and Management

Submitted By patytempel
Words 715
Pages 3


Market Equilibrium is a very important topic people face daily in economy. Understanding how market equilibrium is maintained is essential for business managers. This paper will explain the market equilibrating process. It will include the law of demand and determinants of demand; law of supply and determinants of supply. It will also include examples to better present the topic of surplus and shortage.
The market of a certain product is in equilibrium when the amount offered of that product aligns with the amount needed. When demand is higher than what is being offered, businesses increase the offered quantities of their product as well the prices resulting in a decrease on demand. When the offer is higher than demand, businesses promote clearance to reduce inventory. Both scenarios show how companies tend to equilibrate price and quantities in the market. Competition among buyers and among sellers drives the price to the equilibrium price; once there, it remains unless it is subsequently disturbed by changes in demand or supply (McConnell, 2009).

The law of demand implies that consumers will buy more of a product at a low price than at a high price. So, other things equal, the relationship between price and quantity demanded is negative or inverse and is graphed as a down-sloping curve. Some determinants of demand include: consumer tastes, the number of buyers in the market, consumer incomes, the prices of related goods, and consumer expectations. The determinants can shift the market demand curve. A shift to the right is an increase in demand. Likewise, a shift to the left is a decrease in demand.
The law of supply states that as price rises, the quantity supplied rises; as price falls, the quantity supplied falls. So, other things equal, producers will offer more of a product at a high price than…...

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