The Principle of Market Equilibrium Free Essays

Lately, there have had many fluctuations in clothing markets regarding unusually high cotton prices. The changes in cotton clothing market give us a good opportunity to illustrate the Principle of Market Equilibrium that any time there is an imbalance between supply and demand, economies will normally move toward an equilibrium in which no individual would be better off doing something else. In fact, we have now seen that a market tends to have a single price, the equilibrium price at which the quantity demanded of a good or service is equal to the quantity supplied. We will write a custom essay sample on The Principle of Market Equilibrium or any similar topic only for you Order Now When the demand and/or supply curves shift, the market price always moves toward the market-clearing price, at which there is neither surplus nor shortage. Clothing is drawing more attention, but how to satisfy people’s garment-shopping need with limited budgets is indeed a thorny problem when input prices seem to get higher and higher. Recently, bad weather in China and India, the currently largest producers of cotton, and severe flooding in Pakistan have contributed to shrinking cotton supplies. The cost of cotton, as a result, has gone up almost 80 percent since July.For these reasons, the supply curve for cotton clothing shifts leftward; that is, producers supply less at any given price. In this situation, everyone would predict that demand for cotton clothing decreases, yet in fact, it is growing. As the economic recovery in the United States began, in particular, apparel makers and retailers placed orders for more inventory, spurring even more demand. Economically speaking, the demand curve doesn’t move along but shifts rightward; people still consume more cotton clothing despite the significant rise in the price.Encountering the rise in input costs, apparel makers attempted to hold the line on prices by, say, looking for more cost-effective materials that do not reduce quality and switching production to countries with lower labor costs or milder customs charges. But unable to catch up with consumption, suppliers have no choice but raise prices. The V. F. Corporation, the maker of 7 for All Mankind and The North Face, says most brands will probably cost more next year, and its cotton-heavy jeans lines are particularly susceptible to increases.The Jones Group says its increases could be in the high single digits or more. This increase in prices, all in all, agree with the market finding a new equilibrium; particularly in this case, the demand and supply curves shift at the same time. The rise in price and quantity demanded along with the fall in supply, certainly, corresponds to an upward trend in equilibrium price—but the change in the equilibrium quantity is ambiguous. How to cite The Principle of Market Equilibrium, Papers The Principle of Market Equilibrium Free Essays Devin Bunten 828. 008. 840 As costs rise, airlines cut services and raise fares International Herald Tribune Micheline Maynard Friday, June 6th, 2008 www. We will write a custom essay sample on The Principle of Market Equilibrium or any similar topic only for you Order Now iht. com/articles/2008/06/06/business/air. php The Principle of Market Equilibrium The equilibrium price is the price at which the quantity demanded of a good or service is equal to the quantity supplied. The Principle of Market Equilibrium states that perfectly competitive markets are always moving toward said equilibrium. If the price is too high or low, there will be a surplus or shortage, respectively, which will drive the price towards the â€Å"market-clearing† equilibrium price. When there is a shift of the demand and/or supply curves, the market will adjust by finding a new equilibrium price. Such is the case in the airline industry, where a decrease in supply has led to a rise in the equilibrium price and a fall in the equilibrium quantity. Costs in the airline industry, as in many industries at present, are rising, largely due to an increase in the costs of inputs. The cost of fuel this summer is â€Å"almost double† what it was last summer. This has led to a shift inward of the supply curve for the airline industry; that is, at any given price, airlines will now supply fewer flights. This has been made tangible by the announcements since March that the industry will be retiring more than two hundred aircraft. However, a shift inward of the supply curve is also a shift upward, and airlines are following this stricture of economics as well: various airlines have begun charging between fifteen and twenty-five dollars to check bags, that is, the price has gone up for a service that was once offered at a lower cost to consumers. However, the movement of the supply curve is only half the story. For the purposes of this essay, the assumption is that the demand curve has not moved, however, there has certainly been movement along the demand curve. In addition to the aforementioned hanges, airlines are simply raising their rates. Southwest Airlines, which once would charge no more than $299 for any flight, now routinely charges $400 for some flights. This increase, while a hefty 33% over previous prices, is standard across the market. Correspondingly, the Air Transport Association, an industry lobbyist, has predicted a decrease in the number of people flying of two million from last summer to this . This decrease in quantity demanded, together with the increase in price, corresponds to a leftward movement along the demand curve, towards a new equilibrium. Faced with rising input prices, producers were unwilling or unable to meet the demand at the previous price level, creating a surplus of demand at that price. Producers have therefore responded by increasing prices (as well as, of course, cutting services). This is reflected by the decrease in quantity demand as the price rises. This increase in prices, combined with a decrease in quantity demanded, corresponds to the market finding a new equilibrium—one with far fewer flights, higher prices, and unhappy people on both the side of the producers and that of the consumers. How to cite The Principle of Market Equilibrium, Essay examples