Market Equilibrating Process Paper

Market Equilibrating Process Paper

For a market transaction to take place, a supply and a demand has to occur. One party wants to buy the product or the service and the other party wants to sell the product or the service. The concept of supply and demand is the foundation of a market. The supply is dependent and affected by demand and visa versa. Merriam Webster (2010) describes equilibrium simply as balance. The market equilibrium is the balance point in which supply and deman meet. Competition drives the market equilibrating process. Usually the supply equals the demand and that creates the balance called the equilibrium. But the economy does not stay at the equilibrium. The market economy experience changes and events that create an imbalance. If, for example, a company has a large inventory on products and lowers the price to undersell the competition, the equilibrium point changes. In regard to the effect to supply and demand, the lowered product price rises the quantity demand and with that the quantity demand will fall.

Another example of the market equilibrating process with a shortage is the current housing market in German cities. Germany has, according to the Statische Bundesamt Deutschland (German Statistic Burau, 2010), a population of almost 82 million people. The small country has a shortage in living space. It is difficult to find an appartment. The demand is high but there is a shortage in supply. The price does not decrease with the supply. The price in this example increases because of the shortage. In this case the buyers are the force that increase the price because the buyers compete with each other. In our Germany example students also increase the price because they rent rooms rather than the entire appartment and the individual rooms added together total to a higher rental income for a landlord than renting out the appartment to a family. The reaction to this trend is that the Germans move out in the country and accept...