Eco 561 Market Equillibrium

Market Equilibration Process

ECO 561

March 3, 2011

Steven J. Krohn

Market equilibrium is a situation where the supply is equal to the demand (McConnell, C.R., Brue, S.L., & Flynn, S.M., 2009). When the price is above equilibrium there is an excess of supply but if the price is below equilibrium, there is a decrease in supply. The way in which manufacturers, corporations, or even small companies use their resources, processes, and revenues are what lead them to maximize their profit, but it is contingent on their product satisfying the customer’s wants and needs. How companies maintain the balance between supply and demand determines market equilibrium or manner in which the company maximizes its profits based on units that consumers are willing to pay the price being asked for that particular item.

Starbucks Coffee

Starbucks Coffee chains offer coffee and pastry as a primary consumable for customers. Since Starbucks is elastic in respect to how it has been affected by the market crashing and being force to reduce sales because customers were looking for ways to cut back on their spending and it was “easy” to choose the $4.00 cup of coffee over gasoline to drive their vehicles to work.

In today’s economic situation Starbucks is barely keeping up with current market trends. Prior to the current economic downturn, Starbucks relied heavily on the strength of their brand loyalty and not so much on advertising or other marketing.

Many households are being forced to pay increased prices for their gasoline consumption since for many it is a necessity, thus forcing them to lower their spending on other goods and services such as entertainment and fancy coffee or pastry. In addition, households may also cut back on their Starbucks patronage due to alternative competitors offering incentives and lower prices. For example, McDonalds Restaurants offer basically the same type of drinks at a much lower price as well as full breakfast menus available...