Market Forces and Equilibrium

Market Forces and Equilibrium Market forces influence businesses by controlling the prices of various goods and services. Also, they affect the availability of market products. When the supply of a product falls and its demand rises, the market forces will cause the product's price to rise. Market equilibrium will develop when the demand for goods and services equals their supply. Chen (2020) notes that when the supply and demand of a market balance, the market is in equilibrium; hence, the prices of products become stable. The normal market forces that are likely to cause either long-term or short-term price fluctuations include government, international transactions, speculation and expectation, and supply and demand.

Government and Federal Reserve impose various monetary and fiscal policies influence the financial operations of businesses in the market. The Federal Reserve may adjust its interest rates; hence, affecting the amount of cash that companies are willing to borrow. The government can also impose fiscal policy by increasing or decreasing its expenditure to enable the market's stability. For international transactions, they affect the amount of money, leaving and entering a country. When more money goes out, the economy is likely to weaken; hence, the currency.

Buy this excellently written paper or order a fresh one from ace-myhomework.com

MARKET FORCES AND EQUILIBRIUM

2

The equilibrium of the market also depends on the speculations and expectations of investors and traders. A trader that speculates the prices of products to rise in the future may hoard their goods to wait for the higher prices. Thus, the products’ supply will be lower than the demand, leading to market disequilibrium.

Supply and demand are also among the regular market forces that affect the prices of goods and services. The demand and supply result in a push and pull dynamic in market products' prices (Mitchell, 2020). When suppliers decide to supply several goods that match the market demand, they create equilibrium. However, when the quantity they supply either exceeds or is less than the market demands, there will be disequilibrium in the market. A decrease in supply accompanied by an increase in demand will raise the prices in the market, and an increase in supply beyond the demand quantity will result in a price fall.

When investors purchase stock when their prices are low and sell them when the prices rise refers to negative feedback in the market. The strategy can result in a less volatile market that is in an equilibrium state. In contrast, positive feedback is when investors decide to sell their stock when the prices are declining and buy when they rise. Due to this, the market develops a state of disequilibrium.

The push and pull in demand and supply results in either equilibrium or disequilibrium of the market. The standard market forces that are likely to contribute to the shift in demand and supply include government, international transactions, speculation, and expectation. The government can impose fiscal and monetary policies that control the amount of money in circulation, while traders' and investors' speculations and expectations will affect supply. Thus, they can either reduce supply to below or above demand quantity, causing market disequilibrium. Also, they can ensure the market supply balances its demand; hence, equilibrium.

MARKET FORCES AND EQUILIBRIUM

3

MARKET FORCES AND EQUILIBRIUM References Chen, J. (2020). Equilibrium Definition. Investopedia. Retrieved 1 December 2020, from https://www.investopedia.com/terms/e/equilibrium.asp.

Mitchell, C. (2020). 4 Factors That Shape Market Trends. Investopedia. Retrieved 1 December 2020, from https://www.investopedia.com/articles/trading/09/what-factors-createtrends.asp.

4