Market Equilibration Process Paper Market equilibrium is the point in which industry offers goods at the price consumers will consume without creating a shortage or a surplus of goods. Shortages drive up the cost of goods while surpluses drive the cost of goods down, finding the balance in the process is market equilibrium. The concept is derived from combining equilibrium price and equilibrium quantity to yield the equilibrium of a specific market.
Changes in the determinants of demand, such as how much the product sells and the price of the product can affect the equilibrium of a market. Changes in determinates of supply can also affect a specific market. Supply determinates, such as taxes and subsidies, production techniques, and prices of other goods can cause a specific market to decrease or increase in supply, resulting in changes of equilibrium quantity. With all the commotion going on in the Middle East and the ever increasing demand for Oil by countries such as China and the U.S it is very easy to see why price of crude oil and gasoline keeps climbing. According to Rodney Schulz of Schulz Financial, “One may argue that the oil market is not efficient because a few large players, such as some of OPEC’s largest producers, have the ability to move prices.
And that is true, as well as the fact that insiders in those organizations can take advantage of certain information” He stated further that Looking at the oil and gas industry, one immediately finds evidence of market efficiency with oil and gas prices.First, if the market were not efficient, firms that did nothing but trade oil and gas futures would be as ubiquitous as independent producers. Moreover, they would perform as well in down markets as in up markets. This would be an easy business to start, as there are almost no barriers to entry.
However, firms that do nothing other than trade oil and gas futures are practically nonexistent. A good example of a market equilibrium commodity would be the price of gasoline. Currently a barrel of crude oil sells for around $105. 00USD.This has resulted in an increase in the average price of a gasoline from about $2.
80 in April of 2010 to about $3. 50 as of today (Feb. , 19 2012). Even though gasoline is considered an inelastic product due to its necessity factor, with time consumer will have to reduce their demand if the price continues to increase. An industry that tends to feel the quick effects of increase in the price of gasoline is the delivery industry.
At my organization, any increase in the price of gas is of great concern to the management and the drivers.The organization in conjunction with the drivers is always looking for an equilibrium point at which the organization is still able to make profit while making sure that the driver’s needs are also met. In trying to reach the equilibrium were the organization is profitable and driver’s income demands are met, we employ some measures. The first measure is b what we call localization.
By localizing a driver, we try as much as possible to keep a driver within a certain radius so as to reduce the amount of gasoline they utilize daily.To further mitigate the effects of gasoline price increase on the income of the drivers, we also sometimes provide them with gas rebates vouchers. This keeps the drivers motivated since the shock of the price increase in gasoline has been absorbed by the organization. The organization will absorb some of the cost of the price increase but some will eventually be passed on to the customers as fuel surcharges. References http://news.
consumerreports. org/cars/2010/04/average-gas-prices-april-19-2010. html http://www. spe. org/jpt/print/archives/2007/03/JPT2007_03_guest. pdf
