Shortages and Surpluses

Businesses have to figure out what price to charge consumers Also, they have to try to figure out how much of their product the consumer will be willing to buy

Computer industry decides to produce 400,000 laptops at a price of $1200 each Processors are very fast, and the accessories are very appealing to the public

Because of the competitive price, sales are very fast Orders pour in from around the country for an astonishing 800,000 computers

The market is met with a shortage Quantity demanded exceeded the quantity supplied at the given price

$1200 price is too low for the market Various companies decide to raise the price of the computer to decrease the consumer demand and to maximize their profits

Price will be raised until a proper equilibrium point is reached

A surplus is when the demand does not meet quantity supplied Same industry decides to produce 400,000 laptops and charge $2000 per unit

At that price, sales are sluggish, and consumers decide to buy from other companies Management notices that there are thousands of computers in the warehouse

Customers balked at the price Company is forced to lower the price to increase the amount of sales They will drop the price until the computers sell more briskly

Matter is urgent- company cannot risk to have the machines become outdated

Homework Find an ad for a sale on a big screen TV, stereo, or computer (or other big ticket item) What were the initial prices versus the sale prices? Was the store suffering from a surplus or shortage?