Market Equilibrium Process
Supply and demand is the backbones of the market. It is important to understand how supply and demand is related and when there is market equilibrium of those products. This paper will explore supply and demand, as well as the market equilibrium process of the foster care services that my current agency provides.
Law of demand and the determinants of demand
According to McConnell, Brue, & Flynn (2009), the Law of Demand, states that there is a “negative or inverse relationship between price and quantity demanded.” This essentially means that if a price of a product increases, the demanded quantity will decrease and conversely, if the price of a product decreases the demanded quantity will increase. If there is any excess demand, there is a shortage, which will increase the price of the product.
According to McConnell, Brue, & Flynn (2009), the five determinants of demand include: consumers’ tastes, number of buyers in the market, consumers’ income, prices of related goods, and consumer expectations. Any change to the determinants of demand, shift the curve left for a decrease, and right for an increase.
Law of Supply and the determinants of supply
The Law of Supply states that there is a positive relation between price and quantity supplied (McConnell, Brue, & Flynn, 2009). This essentially means that if the price increases, the quantity supplied will also increase, and conversely if the price goes decreases, the quantity supplied will decrease. If there is any excess in supply, there is a surplus, which decreases the price of the product.
According to McConnell, Brue, & Flynn (2009), the six determinants of supply are: resource prices, technology, taxes and subsidies, prices of other goods, producer expectations and number of sellers . Any change in the determinants of supply will result in a change the supply itself. If there is an increase, the supply curve will shift to the right, while if there is a decrease the supply...