Week Two_ Market Equilibration Process Paper
April 25, 2013
Aleksandr Kocharyan, PhD, instructor
Market Equilibration Process Paper
The following content items are expected to be developed:
• The paper/presentation includes specifics about Law of Demand and lists main determinants of demand, Law of Supply and lists main determinants of supply.
The basic determinants of demand are (1) consumers’ tastes (preferences)- a change that makes the product more desirable—means that more of it will be demanded at each price. Demand will increase; the demand curve will shift rightward. An unfavorable change in ...view middle of the document...
Dis equlibria- Market disequilibrium results if the demand price is not equal to the supply price and the quantity demanded is not equal to the quantity supplied.
• The paper/presentation addresses how Law of Demand and Law of Supply plays role in the price of a specific product or service student has experience with (experience does not have to be work related).
The law of supply and demand is not an actual law but it is well confirmed and understood realization that if you have a lot of one item, the price for that item should go down. At the same time you need to understand the interaction; even if you have a high supply, if the demand is also high, the price could also be high. In the world of stock investing, the law of supply and demand can contribute to explaining a stocks price at any given time. It is the base to any economic understanding.
• The paper/presentation includes 3-5 graphs from Appendix A illustrating equilibration process in price relation to the shifts in supply and demand of the product/service discussed.
Marginal Benefit and Marginal Cost Graph- Chapter 1- Economic decisions center on comparisons of marginal benefit (MB) and marginal cost (MC). Any economic activity should be expanded as long as marginal benefit exceeds marginal cost and should be reduced if marginal cost exceeds marginal benefit. The optimal amount of the activity occurs where MB _ MC.
Quantity Demand Graph- Chapter 3 Other things equal, consumers will buy more of a product as its price declines and less of the product as its price rises.
Determinants of Supply Graph- Chapter 3 Because price and quantity supplied are directly related, the supply curve for an individual producer graphs as an up sloping curve. Other things equal, producers will offer more of a product for sale as its price rises and less of the product for sale as its price falls. The supply curve is drawn on the assumption that these other things are fixed and do not change. If one of them does change, a change in supply will occur, meaning that the entire supply curve will shift. The basic determinants of supply are (1) resource prices- Higher resource prices raise production costs and, assuming a particular product price, squeeze profits. That reduction in profits reduces the incentive for firms to supply output at each product price., (2) technology- Improvements in technology (techniques of production) enable firms to produce units of output with fewer resources. Because resources are costly, using fewer of them lowers production costs and increases supply., (3) taxes and subsidies- Businesses treat most taxes as costs. An increase in sales or property taxes will increase production costs and reduce supply. In contrast, subsidies are “taxes in reverse.” If the government subsidizes the production of a good, it in effect lowers the producers’ costs and increases supply., (4) prices of other goods- Firms that produce a particular product, say, soccer balls, can...