Equilibrium In The Market Essay

1353 words - 5 pages

As with all markets and their respective economies, having equilibrium is one of the key factors of a successful system. Although most markets do not reach equilibrium, they attempt at getting close. There are numerous methods devised to reach equilibrium, whether they involve human intervention directly or a cumulative decision by all factors involved. These factors may be a seller's willingness to lower overall revenue, or a buyer's willingness to withhold some demand for a certain product. Of course, the basics of supply and demand retrospectively control the equilibrium in the market.

Supply and demand is one of the most simple-looking aspects of an economy and its study, but yet it presents the greatest challenge to analysts. Although most events can be mathematically calculated to perfection, the human aspect always intervenes and throws off a calculation. Dealing with the imperfections of psychology differentiates a modern analyst with initiative over one who follows an equation.

With supply solely, factors involved with regulation of the supply also control some aspects of demand. Things such as production costs and desired net profit can determine whether a business succeeds or not. Having a balance between quantity and price is the greatest control any business can have. Pricing is obviously one of the most beneficial, or destructive, parts of a business. Pricing is the first and most valuable thing an individual will look at, which will overrule most other judgments based off of quality and detail. Balancing the price, however, helps to create a pristine product, with just the right amount of detail that will fuel the market, while still generating a steady net income.

When dealing with demand, aspects of supply come into play, but some may be reversed. When factors are reversed, it simply means that one part of supply that may be beneficial, such as high prices, apply oppositely to demand. Higher prices from the demand point of view mean less quantity needed, if any at all. An individual will not invest in an item that is not reasonably priced, or is not needed at all anyways. Having that perfect price is what attracts and grasps the individual.

As with all forms of supply and demand, there is always a healthy quantity of competitive fuel, driving a business to push farther and innovate even greater. When comparing two businesses or products, they always represent two systems: the Substitutes, or the Compliments. Substitutive businesses are ones that proportionately attract one another. By having one business innovate and raise prices, the other business benefits by getting a higher demand. Usually these businesses are heterogenous, having two products that are of equal quality, but different fine details. By having, for example, one car manufacturer that amps its design up to a luxury class car, it provides a higher demand for the lower class cars, while still generating profit from the consumers purchasing their product...

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