Market Equilibration Process
Market equilibrating process is the different modes in which producers and manufacturers seek to create a balance between the supply and demand. The process towards equilibrium will include revising variables, changing the normal patterns, adopting new techniques, creating new strategies and finding new means. All this strategies are put in place to ensure that they maximize the profits while putting in consideration that the consumers are still interested in paying for items at a given point in time. The basic rule for the market equilibrium is that the demand and supply curves have in all cases to intersect. This is in situations whereby the quantity supplied matches the quantity demanded. The price that falls there in is referred to as the equilibrium price or the market clearing price. The quantity therein will thus be referred to as equilibrium quantity (Shipman, 2002).
The price that is imposed on an item is normally dictated by how many items there are and the extent at which they are required by the consumers. The law of demand and the determinants of demand simply state that the higher the price the lower the demand for the product in question. On the other hand, organizations and companies do not want to make very many items of the same product that would drive the prices down leading to less profit. When the supply of a product falls or rises mostly due to the non-price determinants, the supply would be interpreted to have either increased or decreased the supply. There are many factors that lead to this like change in factor price or change in techniques used. In my area which is horticulture, this could also be caused by factors such as climatic changes. The weather conditions dictate increase or decrease in the production levels. Evenly distributed rainfall will increase the supply of the products (Kirzner, 1992).
The efficient markets theory was of the opinion that in the market there exists perfect information. A market would be described as perfect if it the prices in that market reflected all the available information. This hypothesis mainly affected active participants in the stock market. However, it can also apply in other businesses in situations where an organization like my horticulture company in2010 reflected high profits before the end of the year. I had advertised seeking a partner since the organization was not easy to run. Partners emerged with crazy propositions more than I had anticipated. I went to the highest bidder which was worth million of shillings. It made me realize that market efficiency normally makes speculation irrelevant. I came to realize that a market has a weak efficiency when the prices reflect data or information that is contained in past data. On the other hand, a market has strong efficiency when prices reflect public information.
The reason behind why we experience a market price fall is simply because the market price will be above the equilibrium price thus creating a surplus. This is because the quantity that will be supplied will be more than the quantity that will be demanded. As a producer in the horticulture industry, there came moments especially during the winter season when I had a lot of excess inventory that I could not sell. I had no choice but to put them on sale at a lower price. The products quantity demanded went up until it reached the equilibrium price. The surplus basically drove the prices down. Whenever a surplus existed, the prices had to come down so as to entice the quantity that was demanded (Harper, 1996).
In other cases like during the dry spell or rather summer, the market price was normally below the equilibrium price. The quantity supplied was by far less than that which was demanded. This obviously resulted to a shortage. The market was thus not very clear which resulted to an increase in the market price due to the shortage. My flowers attracted very high prices from the customers leading to increased profits. Basically, it was the shortage that was driving the prices up. Whenever a shortage existed, the prices must increase so as to entice additional supply and minimize the quantity demanded until the shortage is eased off.
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