Market Equilibraying Process

Lidia Griffin
University of Phoenix
ECO 561
Professor Alexander Heil
Monday, May 17, 2010
Page of 2
Market Equilibrating Process

This week our reading discussed marginal analysis and the concept of benefits and costs. Essentially for every decision we make, there is a marginal benefit (i.e. what we gain) and a marginal cost (i.e. what the benefit costs us). In the vast majority of cases there is a change to equilibrium and it is important to understand that change before one makes a decision. For example, in order for me to go on vacation to Las Vegas (the gain) I had to delay work on some home improvements around my house. In the decision making process I had to weigh the benefits and costs to determine what I would do.  The inability to make those improvements to my home would be considered the opportunity cost.
The market equilibrating process is concerned with supply and demand – i.e. when the quantity demanded is equal to the quantity supplied. When there is an increase in demand, the equilibrium price and quantity increase. In case where the price is raised to the point where it is higher than the equilibrium price, then there will be a surplus. In the vacation market, the equilibrating process occurs when there is ample competition between buyers and sellers. In my case, I booked the trip well in advance and therefore was able to choose for multiple hotels and airlines all competing for my business. In a competitive market, the marginal benefits must equal the marginal costs – i.e. the price paid for the flight and hotel must be reasonable for the quality of the flight and hotel. In a situation where there is an increase in demand for hotels and flights (e.g. if there are multiple conferences taking place on a given weekend, it is New Years, etc) then there will still be the same number of seats on flights and hotel rooms despite the increase in demand. So one might find that they marginal benefits are...