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During online festival sales, the prices of many products are very low. Use the concept of demand and supply to explain why the sellers sell at such a low price. What happens to the equilibrium when the price is lowered? Does this benefit only consumers or sellers as well? Explain.
Show Answer
- Why do sellers sell at such a low price? To clear old stock (a surplus) before new models arrive. A lower price makes people buy more (the Law of Demand). The profit on each item is smaller, but far more items are sold.
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What happens to the equilibrium when the price is lowered?
- Lowering the price does not by itself move the equilibrium point.
- The equilibrium point changes only when demand or supply changes.
- If the sale price is below the existing equilibrium price and demand and supply stay the same, quantity demanded becomes more than quantity supplied. This is excess demand , so products may go "sold out".
- Sellers often discount because they already have high stock (excess supply), or as a sales strategy to attract more buyers.
- Who benefits? Both. Consumers pay less and can buy things they could not afford earlier. Sellers sell much more in a short time, clear old stock, get cash back, and win new customers.
