Eco561 Week 2 Paper

Market Equilibrium Sergio Carranza ECO561 July 19, 2011 Basil Al-Hashimi Market Equilibrium Process To achieve market equilibrium is what we all strive for as business people and as consumers. When the market is at equilibrium, we know that the market is functioning smoothly. However this is not an easy state of the market to achieve. This discussion will include a real world event. The event will be one in which a high school demanded a certain amount of computers to educate its students, and the amount demanded was supplied.

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With this experience I will be able to explain market equilibrium, the law of demand, the law of supply, and shortage and surplus. The Event My sister in law is a professor at a nearby high school here in the inner city. The school is a new school in south phoenix. The school needed to have a certain amount of computers in order to educate the students that were going to be attending the new school. This school was supplied the amount of computers that were demanded from the board. This example is a small scale example of equilibrium and not at the scale of the world market.

However, market equilibrium was achieved. The Law of Demand In short, there is a negative or inverse relationship between price and quantity demanded. Economists call this inverse relationship the law of demand (McConnell, Brue, & Flynn, 2009). This means that if a price of any product rises then the demand for that product will drop, and if the price drops then the demand will increase. Some of the determinants of demand are factors such as: consumer’s income, consumers taste, the price of the goods, and how many buyers there are.

The Law of Supply As price rises, the quantity supplied rises; as price falls, the quantity supplied falls. This relationship is called the law of supply (McConnell, Brue, & Flynn, 2009). So if supply rises then the price will also rise because the bottom line is profit, and a consumer who is demanding it, will pay it. The determinants of supply are factors such as: number of sellers in the market, resource price, prices of other goods, expectations of producers, technology, and taxes.

Equilibrium Now that these laws have been explained, we can apply this to the computer scenario provided above. If the quantity demanded by the school is equal to the quantity supplied, then we have equilibrium. The equilibrium occurs where the supply curve intersects with the demand curve, and a visual is provided in the graph below. In addition we can explain what would happen if the curves shifted. For example, if the quantity supplied is greater than the quantity demanded, then we have a surplus.

If the quantity supplied is lower than the quantity demanded, then we have a shortage. Market Equilibrium Conclusion On a smaller scale then the economic market, I can take this event and take away from it that we are at equilibrium if, the quantity of computers that are demanded is equal to the number of computers supplied. We have discussed the law of demand, the law of supply, and market equilibrium. Reference McConnell, C. R. , Brue, S. L. , & Flynn, S. M. (2009). Economics: Principles, problems, and policies (18th ed. ). New York, : McGraw Hill/Irwin.