Markets are constantly adjusting to the market equilibration. Being able to interpret the different factors in a market of when consumers purchase (demand), market inventory (supply), surplus and shortage are important to understand for a business to maximize their earnings. Market equilibration process is, “the interaction of market demand and market supply adjusts the price to the point at which the quantities demanded and supplied are equal” (McConnell, Brue, & Flynn, 2009). Many factors go into market equilibration process such as the law of demand and determinants of demand and the law of supply and the determinants of supply. Understanding these laws will enable the market to become an ...view middle of the document...
Let’s say next week the market raises the price of bananas to $3.00 / lb and increases the supply of bananas to 15000 bananas when consumers were only going to purchase 10000 bananas at that price creating a surplus of bananas. At the end of the week the market takes a close look at how much bananas are being sold for and how many are being bought, to find the efficient market. The efficient market is where supply equals
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demand. When the amount of bananas in the market doesn’t meet the demand, this is called a shortage. When the amount of bananas in the market surpasses the demand, we call this a surplus. The factor that markets try to match is the equilibration of the market. Looking at this graph, the market equilibration would be 12,000 bananas at $2.50. Knowing the market equilibration, markets are able to fulfill consumer need while maximizing their profits and not under or over producing. According to the Business Dictionary, market equilibration is, “A situation in which the supply of an item is exactly equal to its demand” (2014). “Since there is neither surplus nor shortage in the market, price tends to remain stable in this situation” (Business Dictionary, 2014).
McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, Problems, and Policies (18th ed.). Boston, MA: McGraw-Hill Irwin.
Market Equilibrium. (2014). BusinessDictionary.com. Retrieved March 31, 2014, from http://www.businessdictionary.com/definition/market-equilibrium.html