|← Ancient Construction in China||Revenue, Cost Concept, and Market Structure Proposal →|
According to McConnell, Brue & Flynn (2009) market equilibrating process refers to the situation where the business creates the goods at the level of price where the consumers can clear market with no surplus or under production. This process is achieved in the market when shortage drives the demand high resulting to rise in prices or surplus decreasing demand and lowering the price until the balance is found.
Experience has shown that for equilibrium to be achieved there should be equality between market supply and demand. Once demand exceeds supply the market attains a state of disequilibrium. When this situation appears in the market the process of equilibrating begins so as to maintain the balance in the market. If the consumer taste changes in favor of a particular product it would lead to increased demand -for instance when you consider use of a product like gasoline or use of electric appliance in cooking, the consumer taste for electric appliance may change in favor of gasoline .This will result in higher demand for gasoline and this would increase the price. To solve this, equilibrating process takes place where supply for gasoline increases shifting supply curve outwards to get to another point balance of demand and supply in the market.
In other cases the demand of a commodity may change following an increase or decrease in the consumers wealth or income.When you hold other factors constant, increase in consumer income derives the demand high increasing the prices. These situations affecting demand would call for equilibrating process to occur so as to maintain the balance in the market (Pugel, 2009). Increase in demand in both cases would result in high prices and eventually shift of the demand curve of the product to the right side creating a new equilibrium point .This shows market equilibrating process when the demand of a commodity increases but when the demand decreases the prices the demand shifts in such a way so as to reduce the price
On the other side if the firm draws out of the industry I have found that there is a subsequent fall in the quantity supplied making the supply to shift to the left .This is equilibrating process that lead to hiking in prices of the commodity .When considering a market dealing with agricultural products, good climatic conditions in a season may result in more yields than other seasons. Due to this fact the commodity is going to be in excess in the market forcing the prices down.
If the quantity supplied in the market increases the equilibrating process begins so as to ensure balance in the market. This is achieved when supply shifts to the left in such a way as to reduce the price of a particular commodity. Consequently the market would clear. The same case happens due to Improvement in production technology, falls in the cost of production and also if a certain industry reports new firms interested in production or manufacturing.
The above happenings in the market would call for the market to respond so as to make the market clear .in situations where technology is increased in production the output would go up resulting in surplus in the market ,consequently the prices would fall, demand rises and by the end of it all demand and supply equalizes (McConnell, Brue & Flynn, 2009) Equilibrating process occurs when the buyers and sellers through the forces of demand and supply sets a price.
Looking at a real example shift in demand or supply can bring market into equilibrium. When one considers two companies dealing with supplying of oil and competing in the same market, they can decide to collaborate and supply less oil. This will result in backward shift in supply curve increasing the prices of oil. To get the initial equilibrium demand shifts to the right and raising prices or backwards maintaining the previous price but at lower levels of consumption (Ball, 2009)
In conclusion, market equilibrating process revolves around forces of demand and supply which either alters prices or quantity of a commodity being produced. This process is achieved when buyers and sellers set one price and one quantity on which they agree on.