Market Equilibration Process

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Market Equilibration Process The market equilibration process explains what occurs when consumers and sellers make decisions in an efficient market (McConnell, Brue, & Flynn, 2009). It is necessary for business managers to understand the market equilibration process to ensure that they are implementing economic principles as well as supply and demand. Since 1998 gas prices are over a dollar a gallon and continues to rise. According to Audet (2013), December 1998 through March 7, 2000, crude oil has risen from below $10 a barrel, a twelve-year low, to over $34 a barrel, the highest since the Persian Gulf War (The 2000 Energy Crisis Gasoline Prices and Energy Policy). Average annual gas prices climbed from a low of $1.03 in 1998 all the way to $3.53 in 2011 — an astronomical 243 percent rise in under 15 years (Avro, 2012). The result of increased gas prices caused a change in transportation. The law of demand, other things equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls (McConnell, Brue, & Flynn, 2009). This could cause a surplus. In short, there is a negative or inverse relationship between price and quantity demanded. In this case the higher the price of gas the more people are buying gas efficient cars. Alternative means are necessary to stay within budget and that may be to buy a gas efficient car. It’s a simple cause-and-effect: As fuel prices rise, demand for fuel-efficient vehicles does the same (Tuttle, 2012). A car may be a luxury to some people but to others it is transportation to get to and from work to make a living. Determinates of demand is public transportation if available in the area or electric cars for substitutes. A hybrid is a complementary good and runs off gasoline and an electric motor. Depending on income one can buy a gas efficient car or upgrade to a hybrid car. The

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