Market Equilibrium Paper

Market Equilibration Process

BusinessDictionary.com defines market equilibrium as "a situation in which the supply of an item is exactly equal to its demand." Is it even possible for the supply of any item to be exactly equal to its demand? It probably is for a product that is made to order but probably not for the everyday market items. Take for example, flat-screen televisions, supply and demand will seesaw depending on price. The market for flat-screen televisions may come very close to equilibrium, but will never be exactly equal.

The first flat-screen television was introduced to the industry in 1998 by Sony (Cazzo, 2003). When these televisions first hit store shelves they were very expensive. Their high prices resulted in low demand for the product by consumers. Once the flat-screen televisions were on the market for a period of time the prices of them began to come down. With this decrease in price the demand for the televisions increased. Other television manufacturers began to come out with their own versions of the flat-screen televisions when they saw that this was the style of television consumers were demanding. The response of manufacturers to add their own style of flat-screen televisions to the market that consumers were demanding brought the flat-screen television market towards a balance of supply and demand, or equilibrium. This response is also a good example of the efficient markets theory. Television manufacturers observed the consumers demand for flat-screen televisions and responded by introducing their own product into the market.

In September 2010, CNNMoney.com reported that a large surplus of flat-screen televisions would result in the price of these televisions decreasing for the holiday season (Goldman, 2010). By the end of September average prices of flat-screen televisions was already reported to be 5% lower than the end of September 2009. That percentage was expected to increase to 12% by December. This surplus of televisions was a result of manufacturers failing to decrease prices in hopes that demand would increase at the current price. This did not happen mostly due to the economic conditions. Consumers were losing jobs and unable to find work, therefore they were spending less money on "wants" and sticking to the "needs."

There are many things that determine supply and demand. Those factors that affect the amount of any product purchased are known as determinants of demand (McConnell, Brue, & Flynn, 2009). The determinants of demand for flat-screen televisions can include the preference of the consumer, the consumer's income, and the purchase price of the television. The consumer's preference and income probably go hand in hand for most consumers. If a consumer has a high income, they will most likely prefer a television with more technologically advanced options, which will have