Market

Market Equilibration Process

Tiffany Matthews

ECO/561

June 25, 2012

George Sharghi

Market Equilibration Process

This assignment is all about learning and understanding the process of market Equilibrium and how it is maintained. I would be also touching upon the law and determinants of demand and supply as well as the market theory and surplus and shortage. I will be using the Housing Market of Cupertino, California and also will be attaching an Appendix A which will show graphs depicting when supply is equal to demand, when demand increases but supply remains the same and when demand remains the same but supply is less.

Law of Demand and its determinants

Simply put, the law of demand states that a consumer will buy more of a product when the price decreases and less of it when the price increases. Its determinants are like the prices of related goods, income, personal tastes, wealth, and expectations from the product, and state of the business. Cupertino, California has always been a highly sought area because of its niche location, right in the heart of the Silicon Valley as well as one of the best school district. Demand for homes in this area is always consistently high.

Law of Supply and its Determinants

Law of supply of goods is that it is about the quantity offered for sale in a given market at a given time at various prices (Thomas).Its determinants are resource prices, production technology, other prices, seller expectations and the number of sellers. In Cupertino, California, the supply curve was affected slightly during the recession period of 2008-2009 and again in 2010. The difference was that where there used to be bidding by at least 10-12 people at one time for a single property, now the bidding is reduced to about 6-7 people. However, as far as the prices have only changed by 2%-3%.People is still seeking properties in this area and Inventory continues to remain low.

Efficient Markets Theory

This investment theory says that it is...