Market Equilibration Process
Jeremiah D. Wood
April 19, 2014
Professor John Lindvall
Market Equilibration Process
Economic equilibrium is defined as a condition or state in which the economic forces are at a balance. In this particular discussion, one will discuss equilibration, the process of moving between two different points that is affected by a change in demand or supply. One will cover how a specific world event, Hurricane Katrina, caused home prices in Baton Rouge, Louisiana to fluctuate between two equilibrium states. Also to be covered is how the process of said movement occurred using the behaviors of both supply firms and consumers.
In the late summer of 2005, Hurricane Katrina bared down on the City of New Orleans and the surrounding areas. This storm caused a surge that caused the storm levees to break that in turn, flooded the City of New Orleans and took most of the city’s housing with it. Because of ...view middle of the document...
Essentially, the increase in population caused the demand curve to move to the right, which caused an excess demand for housing at the original average price. This wasn’t necessarily a bad thing for the supply firms that ran the real estate markets in Baton Rouge. Prices went up, and in turn, so did revenues. But the behaviors of the consumers shifted as well, especially those who were directly by how competitive the housing market was after Katrina ("Post-Hurricane Katrina Housing Costs Put Many On The Edge", 2010).
Demand After Katrina
On the flip side of this discussion, once the rebuilding began in New Orleans, and residents began going back home, the demand curve moved again, but this time in the opposite direction (O'Sullivan & Sheffrin, 2002). But, don’t be fooled into thinking that everything went back to the way it was right away. Things like this take time to even out, and still today, nine years after Katrina, Baton Rouge is still struggling with its identity. Today, the average single-family home price in Baton Rouge sits right at one hundred and forty seven thousand dollars, this was caused by an eventual decrease in in demand as more and more residents were able to move back to New Orleans and the surrounding areas due to rebuilding efforts ("Post-Hurricane Katrina Housing Costs Put Many On The Edge", 2010).
Katrina was an event that directly affected the housing market in Baton Rouge and surrounding areas. The hurricane caused equilibration with a shift to the right with an excess in demand initially, and then a shift back to the left when the rebuilding of New Orleans began to hit full stride. This is a great example how a change can affect the supply and demand of a product, in this case housing, for a certain market area.
O'Sullivan, A., & Sheffrin, S. M. (2002). Microeconomics: Principles and Tools (4th ed.). Retrieved from http://www.prenhall.com/behindthebook/0132447029/pdf/O'Sullivan_CH03.pdf.
Post-Hurricane Katrina housing costs put many on the edge. (2010). Retrieved from http://www.nola.com/katrina/index.ssf/2010/09/post-hurricane_katrina_housing.html