Running head: MARKET EQUILIBRATION PROCESS 1

Market Equilibration Process

Hitesh Panchal

ECO/561

July 4, 2011

Richard M. Mclntire Ph.D.

MARKET EQUILIBRATION PROCESS 2

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 isn’t 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 isn’t any shortage of rooms left at the end of the night. By examining the average

MARKET EQUILIBRATION PROCESS 3

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.

Market Equilibrium

So

Do

Price

Demand increases and there will be a higher market equilibrium.

Price

SoDo

Price

SoDo

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

MARKET EQUILIBRATION PROCESS 4

Reference

McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics. Principles, Problems, and

Policies (18th ed.). Columbus, OH: McGraw-Hill Company.