Market Equilibration Process Paper

Market Equilibration Process Paper
Billy Mac
University of Phoenix
ECO/561 Economics
June 13, 2011

Market Equilibration Process Paper
      The marketing environment is dominated by the relationship between supply and demand. Demand is the quantity of a product desired by customers, i.e. according to McConnell “Demand is the amount of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time” (2009, p. 46). The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded (Administrator, 2009). The law of supply demonstrates the quantities that will be sold at a certain price; but unlike the law of demand, the supply relationship shows an upward slope (Administrator, 2009). When supply and demand are equal to one another then price is in equilibrium.
Increase In Demand
      An increase in demand would raise the price of the equilibrium and have an impact on the quantity. For example, the sporting industry deals with price increases after a team wins a championship. If a player is arrested and goes to prison then consumer demand will lead to the purchase of that player’s merchandise.
Increase In Supply
The market equilibrium theory predicts that as supply increases and the equilibrium price will decrease. Decrease in supply will lead to an increase of price. For example, examining 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 abundant there.
Efficient Market Theory
The Efficient Market Theory refers to those who participate in the market having the ability to receive information when it is available. Advocates of the efficient market believe that...