Login with Facebook
Close

Efficiency and Market Equilibrium

In life, we all want to get the best from everything we do without having the spend too much. Both consumers and producers expect the market to be perfect so that demand and supply are all at the same level. This way, consumers will get enough goods while producers will make enough profit to incentivize the production of more goods and services. When the economy is good, it means everyone is happy, and every process has been perfectly measured and achieved. But then, economic cycles do not let the markets hit perfection, and both consumers and producers have to find a way to coexist.

There are two aspects of economic development that makes everything count. One is efficiency, and the other is equilibrium. In life, we are always faced by different situations that force us to make decisions. And there is no way anyone will live without having to make these decisions. There are many factors that influence these decisions, among the scarcity and budget constraints. According to consumer and producer theories, individuals and firms make decisions based on the best outcome. In other words, they are loss aversive, avoiding anything that seems to cause a loss for them.

And this is where efficiency and equilibrium. When companies want to introduce a new product on the market, they look at existing data to see whether or not consumers will like the product. Data is one of the most critical aspects of understanding and using economic theory. For instance, statistical information about a different company that has launched the same product in the past can help the firm decide on the best ways to succeed where others have failed. On the other hand, consumers use information like price and brand awareness of their buying decisions. But most importantly, they look at their budget and choose the decision of the most appropriate method. Take, for instance, a family that has been saving for a long time, and now they are held between the decision of buying a car or going on a dream vacation. It all comes down to the importance of consumer goods vs. luxury in their lives—the income of the decision-maker determines the utilization of either product.

Both firms and consumers require to make the right judgments and way carefully the outcome of their actions. Such decisions are better discarded if it leads to the harm of themselves or other people around them. It does not make sense for anyone to make a decision that causes a loss for them. It is like humanity to coexist and affect each other in everything they do. A single’ individual’s indecision to buy or not to buy a product will not majorly affect a company, but when a large group of people is involved, things may get worse or better for the markets. When one producer decides to raise the price of commodities, it may not have any major impact on the consumer as they can simply choose to go for another producer.

When looking at efficiency and equilibrium, we need to understand these factors because they are important in microeconomic theory. For instance, the mathematical approach to microeconomics demands the presentation of statistical data. If there is no data, then there is no mathematics because the subject deals widely with numbers and figures.

Describing efficiency

Now that we have laid the background for these subjects, we can get into their description and see their importance in economic processes. Efficiency means the highest level of performance whereby the involved party uses the least amount of inputs to achieve that highest output. It can be compared to the peak of an economic bubble, and that in this case, resources are directly involved. For efficiency to be counted, there must be a reduction in the number of unnecessary resources when producing a given output, and it may include personal time and energy. Efficiency is a measurable concept that be derived from the application of the ration of important output to total output. The main idea of efficiency is to minimize the wastage of resources and maximize profits. Things like physical material, energy, and time are cut down while ensuring the desired output is achieved. Efficiency is important because it helps both consumers and producers are benefiting from economic processes. When one buys a product, they put it to maximum use without risking loss. But it is within the company setting that we get to understand the real meaning of efficiency?

Generally, something is efficient when nothing goes to waste, and all the processes are fully optimized. In the fields of finance and economics, efficiency is very important because it used in a number of ways to get the most out of the process. It is critical for one to discern different terms used in efficiency. Consider the following:

- Economic efficiency.

This is efficiency in terms of individual decisions and processes. It is a form of optimization of resources to serve the best interests of an individual within an economic state. There are no set threshold determinants for the effectiveness of an economy. There is no telling how much a certain economy will succeed through economic cycles. However, the indicators of economic efficiency include products bought in to the market at the lowest cost and labor that offers the best possible outcome.

- Market efficiency.

Markets, too, have their share of economic ups are down. When a certain company makes decisions on a large scale, they generally affect what happens within that economy. And since firms make up markets, their decisions are essential in the growth of these markets. Market efficiency explains how well prices integrate available information. Hence, markets are considered to be efficient when all data and information are already included in the prices, meaning it is impossible to ‘beat’ the market as there is not any less valued securities are any that are overvalued within markets. Everything is said to be at the equilibrium with the market setting, with prices all at the same level. Economist Eugene Fama (1970) described market efficiency, where his efficient market hypothesis (EMH), says the investor cannot outperform the market, and market anomalies should not be there because they will be arbitraged with immediate effect.

- Operational efficiency.

This is the type of efficiency that measures how good profits are gained as a function of operating costs. Great efficiency means more profit for the firm, and vice versa. Companies need to make maximum profits through their operations, and they can do this by reducing costs. This happens especially because the entity can make more income or profits than if it used an alternative method. Operational efficiency is more critical and profound in financial markets, where it occurs with the reduction in transaction costs and fees.

There has been so much development in economic efficiency over the years. It has always existed coincidently with the invention of new tools that improve labor. These processes can be traced back to the ages of the wheel and horse-collar – the hoarse collar redistributes the weight on the back of a horse, helping the animal to carry more without feeling overburdened. The steam engines and motor vehicles came up during the industrial revolution, which allowed people to move further and faster, thus contributing to travel and trade efficiencies. More of these efficiencies were achieved during the Industrial Revolution, where the discovery of new power sources such as fossil fuels made processes cheaper, more effective, and versatile.

Even better, the Industrial Revolution and other movements that came after it brought efficiencies in time. For instance, the factory system introduced production lines where one participant focused on one area of specialization, which brought about an increase in production while saving time. At this time, many scientists came up and developed practices that would optimize specific task performance.

Why is efficiency important?

If a society is efficient, it will be able to serve its dweller and function in the best way possible. Economies need to have efficient processes so that the goods produced are sold at a lower price, enabling local consumers to enjoy better living standards. It is all about giving people a better life and ensuring the everyone withing an economy is having the best time of their lives. When people are supplied with electricity in their homes, running water in their taps, and they can travel easily, nothing will stop them from living their lives to the fullest. Efficiency brings down hunger levels as well as unemployment rates within a society. Advances in efficiency allow for greater productivity within a shorter amount of time, and use lesser resources, saving much for the future.

As we already know, all inputs are scarce. Human demands are unlimited and cannot be quenched by limited resources, which leads to great levels of scarcity. Time, money, and raw material do not exist in maximum fulness, and it is vital to conserve them while ensuring acceptable levels of output.

Market equilibrium

When it comes to understanding economics, one must be ready to learn and fully understand the concept of market equilibrium. This concept helps firms and individuals to make informed decisions whenever they are confronted by the need to do so – which happens at every turn. Markets are described as imperfect because there is no day production and supply will be on the same level. A perf market is where all factors are in perfect supply, including market information and data. But this only happens in theory.

However, this does not mean that firms and firms cannot achieve a state of equilibrium. There are certain situations that can be termed as good for the market. Equilibrium is a state where the supply within markets is equal to the demand. In this case, the equilibrium price is the price of a product when demand and supply are at the same level. Price does not change in an equal market unless other factors like demand and supply are changed, in which case it leads to the disruption of the equilibrium.

When markets fail to reach an equilibrium, forces with it tend to move towards the equilibrium line. This means, if the market price is above the equilibrium line, it means there is excess supply within the market – supply is higher than demand, an effect that leads to a surplus. Companies may not be able to clear inventories unless they apply specific strategies like reducing the price of their goods. Some situations may force them to slow down their production or cease ordering inventory. As long as price keeping reducing, people will keep buying, and it may continue so until supply is further reduced. While supply reducing, demand, on the other hand, will be increasing.

In a situation where the market price is below the equilibrium, it means demand is in plenty and supply in shortage. This case compels buyers to bid up the price of goods and serves so that they can get them. As prices increase, buyers will quit trying, not because they don’t want to, but because of the scarcity of cash and budget constraints. Apart from this, sellers will be excited to see a surge in demand and want to produce more of the product. This condition may continue until the upward pressure on prices and supply stabilize – a market equilibrium.

Determining market equilibrium is one of the best ways to understand economic prices. Fortunately, it is very easy as long as you have the required sets of data. Let’s say, for instance, you are and economist working with a Global Economy Agency, and you are tasked to study the market of peaches in Congo, a developing economy. You have received transaction data for this factor from the past two years, which shows the government has incentivized farmers to grow more Peaches, and now they are seeking to attract international investors. You can allow your team to create a Supply and Demand Equation where:

P is the price per container of the product.

Supply X = 300 + 3p

Demand X = 1,800 – 2p

You can use this information to fine Q by balancing them.

300 + 3p = 1800 – 2p

Hence, 300 + 3p + 2p = 1800

Working further, we get 300 + 5p = 1,800, and then 5p = 1800 – 300

Therefore, 5p = 1,200

Let’s say P = $300, then

Supply Q = 300 + 3 x 300 = 1200.

HenceMarket Equilibrium, you have the equilibrium point as 1,200 containers selling at $300.  

Author: James Hamilton


Need a custom
essay?

We will write it for you.
Order now

Free Essay Examples

Free essays:

All you need to know about Neuroendocrinology
All you need to know about Big data management
All you need to know about digital special effects
All you need to know Technical Writing?
Basics the Game Theory in Cryptoeconomics
Business innovation ideas for making money
Biosensors for cancer diagnosis
Business Analysis: Pricing strategies and Demand Curve
Cognitive Computing- How does Cognitive Computing work?
Consciousness: characteristics and peculiarities
Conservation Economics
Cybersecurity in business: challenges, risks, and practices
Demographic trends and how they affect Economic Growth
Dance as an art form and entertainment
Discrimination Economics
Determinants of Wages
Everything you need to know about short-term memory
Economic and Policy Impacts of Demographics
Ethics: an essay on the understanding of evil
Emotions: what are they? Theories explained
Factors of Demographic Data Collection
Factors Affecting Purchasing Behavior
Financial Statement Analysis
Factors Influencing Interest and Exchange Rates
Government's Intervention in The Labor Market
Guide on the Pathways of the nervous system
Game theory in microeconomics
Globalization: definition, causes, social impact and risks
How Relativism Promotes Pluralism and Tolerance
How to use the audience’s feedback to write a news report
History of silent cinema
How news report can be strengthened through multimedia
Introduction to Population Problems
Imperfect Information and Asymmetric Information
Imperfect Information in Insurance
Introduction to Labor Markets
Journalism: What is News?
Journalism: Broadcast media and Television Presenters
Journalism: Sources of News
Journalism and Law
Key Determinants of National Income
Key Factors That Affect Pricing Decisions
Kinetic models in biology and Related fields
Know about the different forms of traditional African dances
Latest technology trends
Latest dance trends
Magnetoencephalography (MEG)
Microeconomic Analysis to the Demand for Labor
Neuromuscular disorders
National Economies, Fluctuation, and Responses to Fluctuations
Neurotransmitters: what they are and different types
Nanomedicines to target tumors
Objections to utilitarianism
Organizational motivation and its effects
Overcoming Hiring Challenges for Nonprofit Organization
Population Demographics
Recurrent neural networks (RNN) for speech detection
Russian School of Mathematics
Research and Development
Risk Sharing in Insurance and Asset Markets
Stochastic optimization methods in deep learning?
Structure of the nervous system
Structure of a Corporation
Schizoaffective disorder: how to live better with it
The climate change denial
The techniques of basic cinematography
The Endosymbiotic Theory
The Role of Internal Audit in Corporate Risk Management
Unions
Unemployment
Utilitarianism Vs. Kantianism
Understanding Auctions and Auction Theory: Part 2
Various theoretical perspectives of sociology
Virtual reality, what it is and how it works
What are the linear models in machine learning?
What is Convolutional Neural Network
4 Facts about Origin of Mathematics!
5 techniques to create an animation
10 emerging technologies according to World Economic Forum
10 strategies to maximize corporate profits
3d Model Of Building
6 Medical Technologies that revolutionized the healthcare in 2020
All you need to know about the ACA Code of ethics
Architecture and Democracy: An Introduction
Architecture and Democracy: Democratic Values
Architecture and Democracy: Democratic Procedures
All You Need to Know About a Synthesis Essay
An essential guide to understanding Film Theory
Application of Artificial Intelligence in Cyber Security
Applications of electrical engineering
Augmented reality: what it is, how it works, examples
Advantages And Disadvantages Of Social Networking
All you need to know about Cryptography
Applications of astrophysical science
All you need to know about architecture engineering
Applications of geological engineering
Artificial intelligence and medicine: an increasingly close relationship
An insight into Computational Biology
ACA code of conduct
A Rose for Emily
Applications of Mathematics in daily life
Architecture mistakes to avoid
All you need to know about Toxicology
All you need to know about Holistic Medicine
All you need to know about linguistics
An introduction to Linguistics and its subfields
All you need to know about Anxiety disorder
All you need to know about Drones
A Brief Insight into Political Science
Assumptions related to feminism
All you need to know about Byzantine emperors
All you need to know about labour economics
An insight into xenobots -the first-ever robots
An ultimate guide about Biomaterials
A Comprehensive Introduction to the Mona Lisa
Analysis methods of Transport through biological membranes
An ultimate guide about biochemical reactions
Analysis of brain signals
Artificial Gene Synthesis
Application to synthetic biology of CAD methods
All you need to know about metabolic pathways
Applications of BIOMEMS
All you need to know about the epidemiology
Asian vs. western leadership styles
All you need to know about Smart prosthesis
Analysis of Economy: Output of Goods and Services (GNP), and GDP on Economic success
A Guide to Pricing Strategies
An Overview Of Economic Studies
Analysis of Fiscal and Monetary Policies
Analysis of Business Cycles
Analysis of Consumption and Investment
A Look into Regression Analysis
Analysis of Household's Consumption and Savings Behavior
All you need to know about Capital Budgeting
All you need to know about risk management
Art looted in wartime.
Appropriate use of Data in Economics
All you need to know about reaction kinetics?
A historical overview of Financial Crises
All you need to know about management discipline?
An insight into the error-correction models
All you need to know about Data visualization
All you need to know about Work-family balance
All you need to know Technical Writing?
All you need to know about digital special effects
All you need to know about Big data management
All you need to know about Neuroendocrinology
How to Write a Personal Essay
Housing Needs in America
How to Write a Description Essay
How to Create an Excellent Scholarship Essay?
How to write a cause and effect essay
How to Hire the Best Essay Writing Service Provider?
How to Write a College Application Essay?
How to get the most out of your English lectures
How to write Expository Essay
How to succeed in your psychology class?
How to Write an Academic Essay in the Shortest Time?
History of Journalism
How Different Sectors are Using Artificial intelligence (AI)
How to write an informative essay
How to deliver persuasive essays?
How to Give a Convincing Presentation
How to write an essay on leadership?
Historical Art Still Around Today
Humanoid robot: what it is, how it works and price
History of Chemistry
Healthcare Advanced Computer Power: Robotics, Medical Imaging, and More
Healthcare AI: Game Changers for Medical Decision-Making and Remote Patient Monitoring
How to understand different types of English
How to Cope with Chronic Pain
How African American choreographers and dancers have influenced American dance
How mobile robot can do in logistics or in production
How To Become a Successful Entrepreneur
History of the Philosophy of Feminism
How is the climate changing?
How to Track Your Content Marketing ROI
How to Gun control In the USA?
Historical and contemporary role of labour in the modern world
How breast cancers are classified?
How the cells of our body communicate?
How the Lymphatic System Works?
How Digestive System Works
How to complete your capstone projects effectively?
How to write a research project
Healthcare technologies that help patients with better self-management
How to choose the topic of the senior capstone project
How to make your business survive at economic crisis
How can immigrants blend in the American society?
How does the economics of war affect society?
Hate speech on social media.
How to Build an Economic Model
How to start a healthcare startup?
How can financial illiteracy harm you?
How cancer is developed - Cancer biology
How to define the Enterprise Value
How to conduct economic research?
How women can manage sexual harassment
How to use quotes in your news reports?
How news report can be strengthened through multimedia
History of silent cinema
How to use the audience’s feedback to write a news report
How Relativism Promotes Pluralism and Tolerance
Introduction to Urban Studies
Importance of dance in education
InMoov: how to build an open source humanoid robot
Importance of KYC verification to making the Blockchain secure
Importance of Rhythm
Importance of dance student evaluation
I/O control methods -types and explanations
Identity theft: what to do?
Introduction to Utilitarianism
Importance of 3d Modelling in Architecture
Importance of online journalism
Image processing in medical diagnosis
Introduction to USA Politics
Introduction to Comparative Politics
International Relations as a Major in Political Science
Importance of modern trade policy
Introduction to Journalism
Introduction to Writing a TV Script
Introduction of Microfabrication techniques
Introduction to Microeconomics
Interaction of Consumer and Firm Choices in Markets
Importance of corporate sustainability
Issues in International Monetary Macroeconomics
Introduction to Statistics and Data for Economics
Introduction to Data and Probability for Economics
Introduction to the Game Theory
Introduction to Econometrics
Introduction to Economic Information
Introduction to Market Equilibrium
Introduction to Economic Models and Application
Introduction to Empirical Research
Introduction to Econometric Data
Importance of Critical Thinking, Principles, and Goals
Introduction to Identification and Causal inferences
Introduction to Econometric Application
Intermediaries and Government in Financial Crisis
Importance and seven principles of quality management
Illiteracy in the USA
Introduction to Economics of Law
Introduction to Coase Theorem
Introduction to Social Choice and Incarceration
Intellectual Property and Product Liability
Investment in Human Capital
Introduction to Labor Markets
Imperfect Information in Insurance
Imperfect Information and Asymmetric Information
Introduction to Population Problems
The Looming Energy Crisis in America
Top benefits of performance-based engineering
The More Languages You Know, The More Times You Are a Man
Things to consider while writing an Argumentative Essay
Top Ways to Improve Your Academic Writing Skills
Tips to Excel in Creative Writing
The origins of films in the early 19th century
Top career options in Architecture
The Elevator Pitch
Top finance trends 2020
The basic Structure and functionality of robots
The Way to Success
The election system of the President in the United States of America
Two-party System in United States of America
Top trends in urban design
The history and theory of African American filmmaking
Top benefits of creative writing
Tinnitus Guide: Common Symptoms and Treatment Options
The language of dance
The digital image processing management
Top famous politicians of the World
Top methods of political science!
The history of the feminist movement
The blood flow in cardiovascular system - Biofluid Mechanics
The best of Leonardo Da Vinci
The Structure and Function of Macromolecules
The structure of cell: a research on the bricks of the human body!
Tissue and organ construction: Adhesion and recognition between cells
The kinetics of the transformation processes
The Modeling of Biological Systems
Tips for writing a great thesis statement
The Defense mechanisms against infections
The impact of the technological innovations in medicine
Top journalism trends to know about
The relation between mass media & politics
Theranostics: Diagnosis and Care through Nanoparticles
The practical Applications of X-rays
The applications of Ultrasound in medicine
Transfer mechanisms of genetic information in Bacteria
The regulation of cellular metabolism in the diagnosis
The Principles of MRI Contrast agents
The technical basis of optical coherence imaging
The New Media: Emerging Trends
The Structure of Interest Rates and the Yield Curve
Technological perspectives and reflections of neural engineering
Types of bioreactors and their applications
The Role of Government Policy in Improving Economic Outcomes
Types of corporate responsibility
The Role of IMF in International Monetary Macroeconomics
Tools for investment decision making
The concept of Organizational Culture and its applications
The Conduct of Monetary and Fiscal Policy
The Basics of Financial Accelerator Models
Tips for labeling medical devices- Medical Entrepreneurship
The different medical imaging techniques
The Economics of Uncertainty – Introduction
Theories of Public Policy
The Game Theory in Social Media
The political theory of Thomas Hobbes
The Use of Law on Economics and Vice Versa
The Role of Internal Audit in Corporate Risk Management
The Endosymbiotic Theory
The techniques of basic cinematography
The climate change denial
What is a Definition Essay?
What are diagnostic essays?
What is the relation between art structural engineering?
What is a Narrative Essay
What are robotics and intelligence systems?
What are the benefits of studying health sciences?
What is artificial intelligence and why it matters?
What is comparative Literature?
Why study neuroscience
What is Wi-Fi and how does it works
What is French history famous for?
What are Humanistic Studies?
What is covered in Biophysics?
What is modern journalism?
What is Virtualization? Benefits & Applications
What are modern public relations?
What is plasma physics?
What is teacher preparation?
What is rapid prototyping for 3D printing?
What is contemporary European Politics?
Why should you learn American Ballet?
What is engineering physics?
What is the purpose of African American Literature?
Ways to learn the Rhythm
What is digital art used for?
What are Enzymes and how do they work
Who is the father of political science?
Why Study Political Science - Job?
What is the Philosophy of Feminism?
What is a quantum computer?
Ways B2B Startups Streamline Their Conversion Strategies
Why do biomedical signals need processing?
What are the long term effects of climate change?
Why study labour relations
What is Holoprosencephaly?
What is antisocial disorder?
What are the important principles of evolution?
What is the cytoplasm and its function?
What is biopolymers?
What Makes a Good Leader
Women empowerment in modern generation
What is the history of political thought?
What is Gene recombination
What is synthetic biology
What is business cost analysis?
What is Inflation
What are the consequences of unemployment?
What is lithotripsy and its types?
What is transition elastography?
What is the purpose of deep brain stimulation?
What is a Brain-Computer Interface (BCI)
What is neuroethics?
What is Market and Supply and Demand
What is optogenetics?
What are the techniques to record brain activity?
What happens if the interest rate increases?
What is immunotherapy?
What is the economic role of the financial market?
What are the factors behind illegal immigration?
What is the lymphocyte activation?
What is financial market and its types?
What is the structure of financial markets?
What are the methods of measuring business performance?
What is the Credit market?
What is business ethics and code of ethics
What are the Causes of financial instability?
What is MBA with Concentrations
What is regenerative medicine?
What is Population ecology?
What is Microfinance: evolution, and practices?
What is biotechnology and its applications?
What are Workplace diversity and its benefits?
What is the difference between a leader and a manager?
What Is Branding and best branding Business strategies?
Why are microelectronics important?
What are biologic drugs.
What is the Foreign Exchange market?
What is the role of scientific research in times of crisis?
What are the risks of international trade?
What is financial management?
What is gene therapy?
What is education economics?
What is regression analysis, and why should you use it?
What Is Technology Marketing And How Should It Work?
What is Management Accounting
What are the methods of valuation of companies?
What is Immune System and Immunotherapy?
What is big data analytics?
What is the 7 layers of OSI model?
What is Neuroplasticity?
What are Sculpture art and its types?
What are the different genres of films?
What is Transcranial magnetic stimulation (TMS)?
What is TES-Transcranial electrical stimulation?
What is Relativism?
What is Vaccine skepticism, and what to do about it?
What happens in the brain when learning?
What is the deep neural network?
What is Convolutional Neural Network
What are the linear models in machine learning?