Market Equilibration Process
Christina Farmer
ECO/561
March 24, 2014
Bobbie Murray
Market Equilibration Process Market equilibrium is when the supply and demand are equal. When there are changes in either the supply or demand is will shift the equilibrium point as well. It depends on the change on which way that point shifts. In March of 2011 such a change occurred for many products because Japan’s production decreased across the board because of a natural disaster.
When looking at market equilibrium you have to know what you’re looking at and looking for. If demand for a product goes down and there is no change in the supply then you end up with a surplus. This is above the market equilibrium. A shortage is at the other end of the scale. A shortage occurs when your demand goes up but the supply does not or it decreases. Due to the natural disasters that hit Japan n 2011 supply was affected for numerous products, as in decreasing it creating a shortage. Knowing this, it affected a lot of things including the value of investors, stocks, and so forth. This brings to mind the “Efficient Markets Theory. In 1889 George Gibson provided the earliest known state about Efficient Markets Theory; “When shares become publicly known in an open market, the value which they acquire there may be regarded as the judgment of the best intelligence concerning them.”(Gibson, 1889) Our definition today of the “Efficient Markets Theory” according to Richard Brealey and Stewart Myers; “Security prices accurately reflect available information, and respond rapidly to new information as soon as it becomes available.”(Brealey, Myers, 1996) Securities include things such as stocks, bonds, and so forth.
Japan was hit by a massive earthquake the registered as a 9.0 and a tsunami that was 10-metre high. This created dangerous conditions and closed several production plants. The numerous plants that were shut down included but wasn’t limited too; Sony, Toyota Motors, Fuji Heavy Industries, and a few others. Several goods were
