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Market Equilibrium Process Paper

Market Equilibrium Process Paper


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The law of demand states that the higher the cost of a product the lower the demand of production for the product. The law of supply relates to the amount of products or services offered during a certain time phase. The relationship between price and the quantity amount that is supplied, that is positive, creates the law of supply “In contrast, to demand, the supply relationship shows a direct relationship between price and the quantity supplied. High prices encourage firms to produce more, while low prices discourage production. At high prices more resources can be used in production, and more firms with higher costs can find it profitable to produce. The reverse is true for low prices” (U.S. Bureau of Labor Statistics). For efficiency to be most favorable the extra cost and advantages must be equivalent to the production and use of a product.
The graph above illustrates equilibrating process in price relation to the shift in supply and demand. “A situation in which the supply of an item is exactly equal to its demand is defined as market equilibrium. Since there is neither surplus nor shortage in the market, price tends to remain stable in this situation” (Businessethic); Quantity required and the supply of a product is equal. If the price of the product was higher there would be too much produced for that price creating what one would call a surplus, this could cause supplier or competitors to cut the price. A shortage would happen if the prices were lower. The production of the product would not be enough and demand for this product would cause a shortage. This could cause the price for the amount producedto rise. The equilibrium process is as follows: competition among and in the middle of consumers and sellers sets off the equilibrium progression, consumers competing with one another for merchandise in short supply propose up pricing to try to take into custody some of the good, as price…


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