Market Equilibrating Process (Econ 561)

Market Equilibrating Process

ECO 561

November 30, 2010

Professor W

Scottsboro Meats is a family owned grocery stored located in Scottsboro, Alabama specializing in smoked turkeys and hams during the holiday seasons. They are the only retailer offering this item within a sixty mile radius. Due to limited options, local customers turn to Scottsboro Meats to satisfy their utility for these seasonal items at reasonable prices.

Making Decisions

Customers have the option of choosing a smoked ham, turkey or a combination of the two. By using their individual budget lines, or schedule of various combinations of products, customers can determine which option best satisfies their needs. According to Campbell, Stanley, and Flynn (2009), individuals with limited income evaluate which items to purchase, at the expense of forgoing additional wants. Depending on the choices customers have made in previous years, Scottsboro Meats can estimate the level of demand for both turkeys and hams at a particular price, thus determine the level of supply required to meet the market equilibrium.

Based on the law of demand, if Scottsboro Meats were to reduce the cost of turkeys and hams, the demand for these items would increase. This inverse relationship could actually increase the total revenue obtained by Scottsboro Meats. Using the law of demand assumption, managers of Scottsboro Meats decide to reduce the cost and increase the quantity of turkeys and hams supplied during the holiday season. By reducing the cost of seasonal items, Scottsboro Meats managers will need to determine the increased amount of items to produce. Using a supply schedule, managers can determine the amount of items to produce at various prices.

Market Equilibrium

The intersection point of what customers are willing to pay and Scottsboro Meats is willing the sell the turkeys and hams will determine the equilibrium price. Equilibrium quantity will be determined based on the number of turkeys and hams...