Market Equilibrating Process
Autor: Paul • April 4, 2011 • Essay • 631 Words (3 Pages) • 4,567 Views
The economy consists of various markets of buyers and sellers. Markets involve the economic principles of supply and demand. Business managers need to understand how economic principles work together to achieve and maintain market equilibrium. I will use my business experience in the leisure travel market to explain the market equilibrating process. The leisure travel market is competitive and strives to be efficient by using economic principles of supply and demand, equilibrium pricing, managing surplus and shortage of tickets, and using the best technology to provide the right variety of travel products to consumers.
Supply identifies the number of tickets that travel suppliers are willing to supply at various prices. The fundamental characteristic of supply is that as prices increase the quantity supplied increases, and as prices decrease the quantity supplied decreases (McConnell, Brue, & Flynn, 2009). Demand identifies the number of tickets that consumers will purchase at various prices. Leisure travel is dependent on the economy (Hoover's First Research, January 2011). The fundamental characteristic of demand is that as prices decrease the quantity demanded increases, and as prices increase the quantity demanded decreases (McConnell, Brue, & Flynn, 2009). Consumers always look for good travel deals. Consumers are willing to purchase more tickets at lower prices than at higher prices. Travel suppliers are willing to supply more tickets at higher prices than when ticket prices are low. As consumers buy tickets and travel suppliers sell tickets, they reach an equilibrium price and quantity that matches the intentions of both the consumer and supplier (see Figure A).
Supply and demand involves more than just the equilibrium point. When other factors change, known as determinants, the relationship between price and quantity supplied and demanded changes and the curves shift. If there are shifts in demand or supply, a new equilibrium point will be found on the basis of new perceived benefits or changes in costs (Morales, 2011).
One major determinant of demand that causes demand curves to shift is consumer income ("Supply and Demand," n.d.). When travel consumers have an increase in their income, they purchase more tickets, shifting the demand curve to the right. When their income decreases they purchase less tickets, shifting the demand curve to the left (see Figure B).
A major determinant of supply that causes supply curves to shift is the prices of inputs used to produce the product ("Supply and Demand," n.d.). Cruise lines often purchase new ships. When the price of a cruise ship increases, the cruise line purchases fewer ships, supplies less cruises to consumers, shifting the supply curve to the left. When the price of a cruise ship decreases, the cruise line purchases more ships, supplies more cruises to travel consumers, shifting the supply curve to the right