– Relate the concepts of the market equilibrating process in the Weeks One and Two readings and learning activities to a prior real-world experience occurring in a free market. The experience does not necessarily have to be work related.
– Explain the market equilibrating process in relation to your experience. Include academic research to support your ideas.
– Consider the following components in your explanation:
• Law of demand and the determinants of demand
• Law of supply and the determinants of supply
• Efficient markets theory
• Surplus and shortage
– Use University of Phoenix Material: Appendix A to create graphs illustrating the equilibrating process in price relation to the shift in supply and demand.
– Deliver the content as a 350- to 500-word paper, 7- to 10-slide
Microsoft® PowerPoint® presentation, 2- to 3-minute video, or 1-page comic strip illustration.
Market equilibrium refers to the selling price “where the intentions of buyers and sellers match”. This means that the quantity sellers are willing to sell at a particular price matches the quantity buyers are willing to purchase at that same price, or, in other words, where the quantity demanded equals the quantity supplied.
A surplus results when the price is too high (quantity supplied is more than consumers are willing to buy) and a shortage occurs when the price is too low (quantity demanded is more than quantity supplied). The equilibrium price changes when there is a shift in either supply or demand. The market is made up of two basic groups, households and businesses. These two units buy and sell goods and services from and to each other. The market system uses competition among buyers and sellers to regulate the price of available goods and services. Theoretically, this insures that no one buyer or seller will be able to monopolize the market because others can come in and undercut the price. Supply and demand are affected by changes in consumer preferences, number of buyers in the market, consumers’ incomes, the prices of related goods, and consumer expectations.
The economy is currently in a recession, or depression depending on whom you ask, that has greatly affected these determinants of demand. Many industries and individual consumers have seen a steep decline in income due to this market low period. The recession has had a significant affect on the construction industry in which this author currently works. There is currently a surplus of commercial and residential properties on the market. This surplus discourages businesses from starting new construction projects. This has led to businesses reducing their workforces which has in turn led to consumers reducing their spending and has become a circle of lower buying and selling. The construction industry was not the only one affected by this cycle.
Nearly all industries that depend on consumers discretionary funds, those not spent on necessities, were affected. Large manufacturers that have been around forever went bankrupt and small companies everywhere suffered the same fate. The United States economy is market based. Sellers and consumers are free to trade in any way that works for them with relatively little interference from government. This system allows the price of products and services to be set by supply and demand and determines the allocation of limited resources. Suppliers and consumers are connected in a circle of buying and selling, and when there is a major shift in the economy all can be affected.
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