The household consumer in any market ratifies and validates the sales and profit margins of the firms. The household consumer is the target for the goods and services availed in the market. The other concepts involved in the market equilibrating process include the production cost, market price, demand and supply, elasticity and market equilibrium.
The cost of production refers to the out of the pocket expenses incurred by the farmer towards availing a product or a service in the market. It combines both labor and capital intensive expenditures. The market price refers to the value for which the suppliers and consumers are willing to exchange goods and services.
The cost of services and products become determined in the market as buyers and sellers interact. The sellers become sensitive that the market price includes their profit margin. Buyers become careful that the market price is not excessive.
Demand and supply forces control the market economies. Demand refers to the number of people willing to buy a product or service from the suppliers. Market demand is the sum of all individual demands for services and products in a given market.
Supply refers to the quantity or amount of services and products that are available to be purchased by the buyers. The market supply subsequently refers to the sum of all the goods and services available for sales in the market. Market demand and market supply cannot be fixed.
They are elastic. Market elasticity for both demand and supply refers to the dynamic shifts in the amount of goods available for sales and the number of available buyers willing to purchase goods and services. This means that a well functioning market can experience both an increase and decrease in the goods supplied and demanded.
Market equilibrium refers to the point at which everyone in the market is happy to make purchases at the prevailing price. Both buyers and sellers become satisfied (Adil, 2006).
How do the market equilibrating concepts affect trading activities in a well functioning market? Changes in demand and supply affect how trading happens in the market economies. Supply can either be large or small. Supply becomes bigger when there is a variety in the choices of goods and services.
When the choices become fewer, supply becomes small. Demand can be classified as either high or low. When the market has more buyers for a commodity the demand becomes higher and vice versa. The interaction between demand and supply affect the prevailing market price.
Sometimes goods and services have a high demand and a small supply forcing buyers to spend more money on the fewer commodities. This means that the market price will be high. Other times the amount of goods and services will be large while the market demand is low.
This means that the quantity of products in the market exceeds the number of available buyers. The prevailing market price inevitably goes low as suppliers lower prices to stay in business. Other times the amount of goods and service supplied in the market matches the existing demand. This causes the market to stabilize. The price in the market reaches an equilibrium state. This means that demand and supply balances.
Conclusion
The two most fundamental concepts in the market equilibrating process include demand and supply. The market reaches equilibrium when the market supply matches demand.
References
Adil, J.R. (2006). Supply and Demand. Minnesota: Capstone Press.