Market Equilibrating Process
ECO/561 - Economics
This paper will explore the market equilibrating process and relate this process to a personal experience that has occurred in my life. According to the assigned reading, the equilibrium price for a product is the price at which the demand and supply curves intersect. In competitive markets, prices that are higher than the equilibrium price will result in a surplus and the market price will fall. When the market price is lower than the equilibrium price, a shortage will exist and the market price will rise. The equilibrium price is stable under existing demand and supply conditions. At equilibrium, no tendency for price to change is expected. Changes in supply or demand will cause predictable changes in both the equilibrium price and quantity. (McConnell, Brue, & Flynn,2009).
To find market equilibrium, the two curves are ...view middle of the document...
New construction was appearing everywhere. The seller had the upper hand. The average listing time for properties was 30 days or less before a contract was accepted. The buyer moved quickly to ensure that their offer was accepted. Properties sold at a rapid pace. Then the housing market took a turn for the worst.
In the process of purchasing a house, buyers and sellers must mutually agree on a price before a sale can take place. The decision to be made is how much the buyer will have to pay. The decision on what the buyer will have to pay is dependent upon what other sellers have sold for over the last six months. Due to an unproductive market, the move to equilibrium occurs slowly, so much so that one can see it happening in your own neighborhood within past years. There is a surplus of properties available due to many reasons. Foreclosure rate is at an all time high. Inventory is off the charts. Lenders are not lending unless you meet extreme criteria. There is no more 100% financing, so this means that you must have the resources to finance at least 10-20% of your purchase. It can also be seen on television, which has several programs about the process of buying and selling homes. In this current market house purchasing is an inefficient market, the movement to equilibrium occurs slowly across the board.
The process of purchasing a home may include obtaining financing, which is extremely hard to receive in this market. The lenders also took a big hit in this market. Many went out of business. Buyers and sellers were literally left at the table waiting to finalize their deals with no funding. When you do obtain a mortgage, you face the possibility of job loss, family issues or loss of sufficient income to make payments. The reality is that the bank that gave the loan is really the owner of the property until the note is paid in full. All of this has and will continue to affect the market equilibrating process until who knows when.
McConnell, C.R., Brue, S.L., & Flynn, S.M. (2009). Principals, problems and policies
(18th ed.). New York: McGraw Hill/Irwin.
www.cwx.prenhall.com. Retrieved January 14,2010.