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Market Equilibration Process Paper

560 words - 3 pages

In 2007, my business partner and I decided to get into the business of selling different types and brands of glasses. We purchased 1,000 glasses a month at about $4 a piece and the goal was to sell all the glasses every month. The price for these glasses started at $40 each. Based on our research on sites such as craigslist and ebay, we realized that the demand for shades was pretty high, in spite of this, our sales were very low. We experienced a big surplus since we had way more inventory than customers wanting to buy our glasses or more supply than demand. Surplus is the extent to which generation of goods, services and resources (such as capital) exceeds their consumption.
After doing a bit more research, we decided to use different marketing tools and strategies ...view middle of the document...

An economic shortage is a disparity between the amount demanded for a product or service and the amount supplied in a market. Specifically, a shortage occurs when there is excess demand; therefore, it is the opposite of a surplus.
In order to reach our equilibrium point or the point where our supply met the demands for our particular shades, we went back to our $40 price and then brought the price down by $4 every month. By the 4th month, prices were dropped to $24 per pair and that month we were able to sell 500 pairs by the end of the month which was a pretty good return on investment. This was the point when we reached our market equilibrium. Equilibrium is a situation in which the supply of an item is exactly equal to its demand. Since there is neither surplus nor shortage in the market, price tends to remain the stable in this situation. Equilibrating 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”, known as equilibrium price. The corresponding quantity is the equilibrium quantity. A change in either demand or supply changes the equilibrium price and quantity (McConnell, Brue, & Flynn, 2009).

Through this experience, my partner and I learned a valuable lesson and that is that customers control the market and if you make things affordable enough, the demand for that particular item will always be there. We found that rather than 1000 pairs per month, 500 pairs was the actual quantity based on our demand.

References.
McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, Problems, and Policies. New York, NY: McGraw-Hill/Irwin.

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