Market Equilibrium

Market Equilibration
Lakeesha Neighbors
Alfred Igbodipe
August 5, 2013

      Market Equilibration
      Organizations strive to meet market equilibrium price which is “the price at which the total quantity supplied of the product equals the total quantity demanded” (McConnell, Brue, & Flynn, p. 188, 2009). If there is more supply than there is demand, there will be a surplus of goods available, however if there is more demand than supply there will be a shortage. The introduction of goods into the market can shift the supply or demand curve, this is illustrated with the introduction of the Vietnamese into the coffee industry. Coffee was not central to Vietnam until the 1980’s, however it was their increased interest in 1990’s that led to the growth of supply to the market and therefore affected the price of this good.
Vietnam Coffee Boom
        From 1990 to the year 2000 “Vietnamese farmers, approximately 80% of them smallholders, planted more than a million hectares of Robusta coffee” (Ha & Shively, 2008, p. 312).   Several events lead to the increased growth of coffee bean producers in Vietnam including “policy of privatization, economic liberation, state-sponsored migration, and price spikes generated by frosts in Brazil” (Ha & Shively, 2008, p. 312).   The introduction of the Vietnamese into the coffee bean industry caused a shift in market equilibrium.
      The price of coffee declined as a result of “rising stocks, inelastic demand and a shift toward low-cost Robusta for processing” (Ha & Shively, 2008, p. 312). Ha and Shively (2008) report that there was a surplus in production of the good which caused a price reduction.
      Demand and Supply
      The law of demand suggests that “things equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls (McConnell, Brue, & Flynn, p. 47, 2009). Taking coffee into account, the price elasticity of demand of a good is...