Market Equilibration Process Paper

Market Equilibration Process ECO / 561 Market Equilibration Process Market Equilibrium occurs when the quantity supplied is equal to quantity demanded. The price equilibrium price exists when buyers and sellers price match and there is no governmental intervention (perfectly competitive market). After a market is in equilibrium, there is no trend for the market price to alter. For example, the law of demand states that as price goes up the quantity demand must go down and similarly, law of supply states price goes up quantity supply must go up (McConnel, Brue, & Flynn, 2009). Viewing the graph below we can find the equilibrium occur at the price of $3 where the quantity demanded equals the quantity supply at three units. The price is stable at $3 and at any other prices will have a |Price (P) |Quantity Demanded (Qd) |Quantity Supplied (Qs) | |$1 |5 |1 | |$2 |4 |2 | |$3 |3 |3 | |$4 |2 |4 | |$5 |1 |5 | Equilibrium occurs at P=$3 (Qs = Qd = 3 units) [pic] a tendency to change. At a dollor, for example, at $1 buyers are able to buy five units but seller are only willing to provide one unit to the market. In this situation, quanitity damand is greater than qualiity supply is referred to as a shortage and will result in an upward pressure in price. Since there is only one unit is available so buyers will complete to buy the one available unit by offering more money. Then price goes up and the qualitity demand decreases, quantity supply rises until equilibrium is reached (McConnel, Brue, & Flynn, 2009). pic] Disequilibrium Disequilibrium occurs when the price or quantity is not equal to Price or Quantity. If the prices are high, surplus is created and there will be inefficiency. Demand surplus is created when prices are below the equilibrium price. Since the prices are low, many buyers want the good while suppliers are not making enough of it. A shift in a demand or supply curve occurs when the good’s quantity demanded or supplied changes but the price remains the same. Short-run and Long-run Supervalu is going through a long-run, which is a period when a plant or company has a long period to adjust the quantities of all the resources that it employs. I currently work for Supervalu and its dissolving certain retail stores such as Acme Markets because it is not producing profits in a certain metropolitan markets. Acme Markets price was below the minimum average variable cost and to minimize its losses, Supervalu shut down the retail stores. New retail markets such as Save-a-Lot stores are increasing because it targets at low-medium level income families. Pure Competition Supervalu is part of the pure competition because its retail stores are offering standardized products. Supervalu retail stores are able to freely enter and exit the industry. In pure competition, marginal revenue and price are equal (McConnel, Brue, & Flynn, 2009). Reference McConnel, C. R. , Brue, S. L. , & Flynn, S. M. (2009). Economics: Principles, Problems, and Policies (18th ed. ). New York, NY: McGraw-Hill/Irwin.