Market Equilibration Process Paper
Michael Blake Lewis
April 28, 2014
Understanding how balance affects a business and can influence decisions. The concept of supply and demand drives equilibrium. This paper will look at how a business can be affected by a shift of equilibrium. During these times of skewed equilibrium a business must compensate so that their profits do not suffer.
Market Equilibrating Process is “the interaction of market demand and market supply adjusts the price to the point at which the quantities demanded and supplied are equal”, known as equilibrium price. The corresponding quantity is the equilibrium quantity. A change in either demand or supply changes the equilibrium price and quantity (McConnell, Brue, & Flynn, 2009). In recent years a shortage in tomatoes led the fast food chain Wendy’s to have to suspend offering tomatoes on its sandwiches. The decrease in supply caused Wendy’s to loose business and customer satisfaction. There was nothing that Wendy’s could do to offset the shift in equilibrium and had to just wait until the market came back around. Wendy’s was not able to offset the losses occurred during this shortage.
In my current business the laws of supply and demand are very evident, especially when it comes to cash flow. As the business has grown it has gotten to the point that the need for loans and increased funds are superseded the ability to obtain new inventory. The business is at a point that inventory cannot be supplied to in order to be able to make more cash so that the cycle can complete itself. When the supply of income decreases the demand for more reserves of cash increases. Without a basis of cash in reserve the business is starting to suffer. In order to right this wrong the business is selling off some assets so that we can bring the amount of free cash back into equilibrium in order to continue stocking the products we need to create more...