Market equilibrium is a circumstance in which the quantity of merchandise or services demanded by consumers is equivalent to the quantity supplied by sellers (McConnell, Brue, & Flynn, 2009). The purpose for this paper is to relate the concept of the market equilibrating process to a previous real-world occurrence happening in a free market. The market equilibrating process will be clarified and the following components will be considered in the clarification; law of demand and determinants of demand, law of supply and determinants of supply, efficient markets theory, and the surplus and shortage.
Law of demand and determinants of demand
Demand is a schedule or a curve that illustrates ...view middle of the document...
When discussing the law of supply, a real-life experience would be to examine the management of the cost of oil in the United States and Saudi Arabia. The price of oil is more in the states because Saudi Arabia has a bigger supply of oil. As a result, the supply will always be greater than the demand in Saudi Arabia because the oil is plentiful there.
Efficient markets theory
The efficient market theory refers to those who participate in the market acquiring the ability to receive information when it is available. So in businesses such as the stock market, in efficient markets, prices become not predictable but random, so no investment pattern can be distinguished. A planned approach to investment, therefore, cannot be successful.
Surplus and shortage
If the market cost is exceeding the equilibrium cost, quantity supplied is exceeding quantity demanded. This generates a surplus signifying the market price will drop. For example, if you are the owner, and you have a large amount of surplus inventory that you cannot sell...