Allen Farber Posts: 191, Reputation: 1 Junior Member #1 Nov 3, 2019, 03:29 PM
Question Regarding Equilibrium Price & Surplus
So here's an example of a standard Supply & Demand Relationship for an Individual Supplier:

As a supplier, for \$1, I'll produce 1 unit of something. For \$2, I'll produce 2 units, for \$3, I'll produce 3 units, and so on and so forth up until \$10 for 10 units.

At \$1, I'll have 10 buyers, at \$2, I'll have 9 buyers, at \$3, I'll have 8 buyers...all the way up to having 1 buyer at \$10.

As you can see, there's an inverse relationship with the equilibrium price being right in the middle: Producing 5 units with 5 buyers buying each of them at \$5 per unit. Simple...

But now I'm wondering what would happen if there was a surplus. Ideally I should've made 5 units at \$5 each and sold them all to 5 buyers. But let's say I make 6 units, thinking I'll be able to sell all of them for \$6 each, but I only end up selling 4 of them to 4 buyers. If I wanted to sell all 6, I would have to sell them at \$4 each to reach equilibrium. The problem is if I sell 6 of them for \$4 each, I'll make less money than I would selling only 5 of them for \$5 each.

So do I reduce the price to \$4 so I can sell all 6 of them, making \$24? Or do I sell 5 of them at \$5 each, making \$25, and then sell the remaining one for less money?

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