Market Equilibrium Individual market equilibration process

The laws of supply and demand as they relate to market equilibrium are manifested every Christmas, when children's toys are bought and sold. Quite often there is a hot toy that all children suddenly seem to want. Suppliers cannot manufacture enough toys to suit the demand of parents. As demand increases, price increases. Suppliers, eager to sell more of the desired toy, begin to increase supply to garner the high price the item commands. Eventually, prices become too high and demand drops, stabilizing at equilibrium. After Christmas and after the market grows saturated with the toy, the price drops further as demand drops further. A new equilibrium is reached as the Tickle Me Elmos and Cabbage Patch Kids of yesteryear become discount toys.

Another determinant is income -- as income rises, so does demand. This suggests that demand for a luxury item like a toy is likely to be highly elastic. Christmas spending will vary from year to year, depending on the health of the economy and the employment rates. Prices of complementary goods will also affect demand -- for example, if prices of Xbox games increase, then demand for Xboxes may decrease as well as the demand for games. Prices of substitute goods will also have an effect -- if an Xbox and a Zhu pet are both on the 'hot' list, parents may opt for the less expensive option.
Not all options influencing demand are so logical. Taste or preferences can also have a substantial impact. Parents may place pleasing their children at a very high premium…