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Running head: MARKET EQUILIBRATION PROCESS

Market Equilibration Process Hitesh Panchal ECO/561 July 4, 2011 Richard M. Mclntire Ph.D.

MARKET EQUILIBRATION PROCESS Market Equilibration Process

Every business faces the law of demand and supply; the businesses that prosper will have something unique to give to the consumer base so the demand will be higher for such service or product. There are times when businesses only strive during certain time of the seasons and these companies must know the different market equilibrium for that specific month. The perfect example with regards to demand and supply is our family business, my parents and I own two motels that has great marketing demand but the problems lies with the over cluster of other properties. When consumers have alternatives to their decision than as a business we are no longer a monopoly but more a pure competitors market and this lowers the demand for our business. When discussing the law of demand and supply the perfect property to discuss is our downtown location, which is in Fresno, CA. This property has a great advantage because it is walking distance to the convention center and when there are events or concerts the demand for our property rises, so in this case there will be shortage since we cannot accommodate every client after all the rooms are taken. When we know the demand is high we are willing to raise the price much more than our average daily rate to make more profit but this will shift the market equilibrium up because every person has a limit to how much they can spend. During the slow seasons for example during Thanksgiving and Christmas there is much lower demand and higher supply so the market equilibrium will shift lower since consumers have more options on prices. When there isnt a demand for our service our fixed cost does stay the same regardless of the market condition so as business owners we have to account for that. When we know there is going to be high demand for a certain event we have to understand what people are willing to pay so there isnt any shortage of rooms left at the end of the night. By examining the average

MARKET EQUILIBRATION PROCESS rate per that day we can account for how much people are willing to pay and by getting a higher rate our profit margin definitely increases. When there is high demand for the rooms during the

busy time our service is inelastic, so if we raise our price by double there is still a market for our rooms because people are willing to pay to stay comfortably close to the event. When the demand becomes less than our property becomes elastic, so to keep customers coming we might have to reduce our price to fill up the rooms.

So Price Do So Do

Price

Market Equilibrium
Do So

Demand increases and there will be a higher market equilibrium.

Price

Supply increase due to the price being lower, so the market equilibrium will shift to a lower line.

MARKET EQUILIBRATION PROCESS Reference McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics. Principles, Problems, and Policies (18th ed.). Columbus, OH: McGraw-Hill Company.