Market Equili Paper

Market Equilibrating Process

Market Equilibrating Process

The market equilibrium process is characterized by the private ownership of resources and the use of markets and prices to coordinate a direct economic activity (pg. 30). The market price established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers. The price will not change unless the demand or supply changes. A real world experience in relation to market equilibrium is real estate. Changes in the determinant of supplier such as changes in production costs, technology, and prices of related goods and services cause the change in equilibrium markets (McConnell, Brue, & Flynn, 2009). For example, any increase in housing prices will increase the tax liabilities therefore paying more for a home the tax prices are inevitable. Consumers may attempt to adjust their housing budget yet the taxes remain equivalent to the pricing. This shows that housing prices and taxes remain the same shift in equilibrium. The Efficient Markets Theory or EMT is a great example of this process. Demand increases the intrinsic value of the home. Increased labor prices, materials, or tax liabilities associated with the end sales price, are all fixed to the creation of the new home. Surplus of supplies would result in a lower price and tax basis for the home while demand would increase those values for the owner.

EMT is also clearly reflected in pricing of an asset based on inflation, labor, and interest rates for mortgages. When any sector increases exposure, rates need to be raised for incentive for continued investment. More aggressive investments result in greater interest rates charged by lenders. Since interest rates are at historical lows, borrowing money now will yield higher returns when demand increases. However, utility bills for a home owner are directly linked to life style and living square footage. Consumers who use extensive energy will have a similar correlation in cost increases as it pertains to square footage. Increased living area will have a directly correlates with energy used. Commodity prices like copper and oil also have a significant effect on home prices. This is also another example of the equilibrium process.

For example, asphalt roofing supplies are directly correlated to oil prices. An increase in oil prices will have an effect on material