Market Equilibration Process - Research Paper Example

On the hand, the suppliers take advantage of the situation and tend to increase the prices of the commodity but still produce less. When supply falls, the supply curve shifts to the left. At the initial equilibrium price P1, quantity supplied falls. This creates excess of demand over supply which causes the price to rise to a new equilibrium level P2 and also the quantity falls to a new equilibrium level Q2 It refers to the quantity of a commodity per unit time which consumers are willing and able to buy in the market at a given price other things held constant.

The law of demand states that the lower the price of a commodity, the higher the quantity demanded by the customers and vice versa. As population increases, the population structure changes in a way that an increasing proportion of the population consists of the young people. This will lead to a relatively higher demand for those goods and services consumed mostly by the youth. It can be defined as the quantity of goods and services per unit of time which the suppliers are willing and able to produce to the market for sale at a given price other things held constant.

The law of supply states that the higher the price off a commodity in the market, the more the supplies will produce and supply to the market but the lower the price, the lower the quantity produced and supplied. Surplus refers to a situation where the quantity produced and put by the suppliers in the market is more than the quantity required amount by the consumers. This is also referred to as excess supply and it pushes the prices down. Shortage or excess demand on the other hand refers to the state where the quantity of the commodity that is required by the consumers is in less than the amount that is supplied to the market by the producers.

This pushes the prices above the equilibrium