If planning a vacation there needs to be consideration for the total cost and what is available to spend, and second is the real income effect, has there been a change in a families purchasing power. The law of demand according to McConnel (2009) states, Other things equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls. When there is a change in determinants of demand in the family for examples; income of the family, the cost of an item, and the expectations of the family. Each of these determinants will have an effect on the demand. The demand will either shift to the right with an increase or to the left indicating a decrease. The law of supply according to McConell, (2009) states, As prices rises, the quantinty supplied rises; as price falls, the quantity supplied falls.
So with higher prices production is increased and profits are increased. Changes in family income will affect the supply determinants. This will cause a shift to the left to decrease the supply. These determinants includes resource prices, job market, employment, taxes, and prices of other goods. Efficient markets theory states that all working financial markets react at the very moment to any new information for families, this means the price in vacation is placed at that very moment, and any family has a chance to act on it or not.
At times, the resources are lacking and the consumer demand outweighs the available supply or the supply is greater than the demand. This is when the equilibrium shifts and causes either a shortage or a surplus. With shortages in this case there is an excess in the demand or low supply of income. This will result in a price increase and those prices will prevail. Then when there is a surplus of an income this will cause the family to have more expendable income. To obtain market equilibrium there has to be a balance between both supply and demand.
Economics Online. (n.d). Market Equiblrium. Retrieved from http://www.economicsonline.uk/competitive_markets/Market_equlibrium.html McConell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics, Principles, Problems, and Policies (18th ed.). New York, NY: The McGraw-Hill. NASDAQ. (n.d). Efficient marets theory (EMT). Retrieved from http://www.nasdaq.com/investing/glossary/e/efficient-market-theory