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Market Equilibrium Market Equilibrating Process Essay
The price is so high, consumers begin to become reluctant to pay for the item. Retailers must lower prices to unload their excess inventory of Tickle Me Elmos, Cabbage Patch Kids, or Zhu pets.
A state of perfect equilibrium for a long period of time is rare. Perhaps one example of perfect equilibrium might be found at an elementary school that sells pizza to its students. The demand is relatively constant, given that the student population remains the same from week to week, and students have relatively few other options. Students whose parents give them money for pizza have no choice but to buy food on-site, since they have cannot eat otherwise; students who 'brown bag it' are unlikely to buy lunch, even if the pizza is substantially cheaper one day. Because lunchtime is finite, few students have the time to eat more than one or two slices, so they will not buy more if price is lowered. The vendor has discovered over time what price students are willing to pay so the pizza parlor can still make a profit and can guess what the demand will be, based upon the fixed number of students and the time of year or week. Although some students may occasionally buy other items and some students may elect to throw out their bagged lunch and purchase pizza that day, overall the balance between supply and demand is relatively stable.
This will change if, for example, tomatoes become substantially higher in price, the vendor must raise his prices, and students must decide if they are still willing to purchase pizza. If demand goes down as price goes up, the producer may have to make fewer pizzas. This could cause an upsurge in demand, as students begin to see the pizzas disappearing more quickly at lunch. However, if input costs and available substitutions remain relatively stable, when numbers of demanding consumers are unaltered, as is supply, price is likely to be stable under these relatively controlled market conditions.
References
Demand, supply, and market equilibrium. (2010). Prentice Hall. Retrieved March 2, 2010 at http://wps.prenhall.com/bp_casefair_econf_7e/30/7931/2030537.cw/index.html
Market equilibrium. (2010). Business Dictionary. Retrieved March 2, 2010 at http://www.businessdictionary.com/definition/market-equilibrium.html
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References
Demand, supply, and market equilibrium. (2010). Prentice Hall. Retrieved March 2, 2010 at http://wps.prenhall.com/bp_casefair_econf_7e/30/7931/2030537.cw/index.html
Market equilibrium. (2010). Business Dictionary. Retrieved March 2, 2010 at http://www.businessdictionary.com/definition/market-equilibrium.html
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