Market Equilibration Process

Running Header: Market Equilibration Process Paper

Labor Demand and Supply

Running Header: Market Equilibration Process Paper

Introduction

The purpose of this paper is to relate the concepts of the market equilibrating process to a prior real-world experience occurring in a free market. The market equilibrating process will be explained and the following components will be considered in the explanation; Law of demand and the determinants of demand, law of supply and the determinants of supply, labor demand and supply.

Law of Demand and the Determinants of Demand

According to Economics: Principles, problems, and politics, a fundamental characteristic of demand is this: Other things equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls. In short, there is a negative or inverse relationship between price and quantity demanded. Economists call this inverse relationship the law of demand and the determinants are the “other things equal” in the relationship between price and quantity demanded (McConnell, Brue and Flynn, 2009).

Law of Supply and the Determinants of Supply

According to Economics: Principles, problems, and politics, the law of supply states that as price rises, the quantity supplied rises; as price falls, the quantity supplied falls and the basic determinants of supply are, resource prices, technology, taxes and subsidies, prices of other goods, producer expectations, and the number of sellers in the market (McConnell, Brue and Flynn, 2009).

Running Header: Market Equilibration Process Paper

Labor Demand and Supply

The demand and supply of labor are determined in the labor market. The participants in the labor market are workers and companies. Workers supply labor to company’s in exchange for wages as shown in a circular flow model. Companies demand labor from workers in exchange for wages. If the demand for the company’s output increases, the company will demand more labor and will hire more...