Markets and Economics of the Public Sector

Markets and Economics of the Public Sector

Kendell Joplin, Christa Sullivan, Joseph Hannah, & Lynnea Shorter

ECO/365

12/12/2016

Neil Johnson

Markets and Economics of the Public Sector

Equilibrium of Supply and Demand

When asked to explain why equilibrium of supply and demand is desirable we first need to understand what it is. The equilibrium of supply is simply put the point where supply and demand are at a positive point at the same time. When supply and demand interacts freely as a result is marketing efficiency.  The supply is not too high or low and the demand is not too high or low finding an almost perfect medium. When a free market allows prices to be changed as need to meet the demand of an item or service this gives you a free and efficient market. This is the market that allows for growth for both the consumer and supplier.

                A free market allows for the market to become equal by allowing the vendors of the product to change their prices as needed according to the demand for the product made by the consumers. Without a free market the government will dictate the price of the item and this may adjust the supply curve because the price is too high which lowers the demand for an item.  The demand curve is how the demand of an item is measured to determine if the demand is high enough to raise the price. The price could also be set by the government to be too low. This would cause a shortage if the item in question.

                When the equilibrium of supply and demand is in sync the customer is not over paying for an item and the supplier is not making too little or too much of the item. This balance is created in part because of market efficiency. Because, the supplier is able to know the marketing area and knows the amount of demand for the item and is able to change the price accordingly. Both the supplier and consumer benefit from this process and in turn create the equilibrium of supply and demand.

Influences of Consumer and Producer Surplus

A market is considered to be efficient when it has the ability to provide the most amounts of consumer surplus as well as producer surplus as possible. Therefore, an inefficient market creates a deadweight loss. A deadweight loss is a loss within the total surplus that happens when the economy produces at an inefficient quantity (www.khanacademy.org). Therefore, the ultimate goal of market efficiency is to achieve overall efficiency and equity for all. This is done so by sufficient resource allocation that will maximize surplus received by all, as well as consideration to fair distribution of well-being amongst different buyers and sellers.