Question

what would happen to producers if a company did not change prices when faced with a surplus? shortage?

what would happen to consumers if a company did not change prices when faced with a surplus? shortage?

Answer 1

1) According to the producers is they didn’t make necessary changes in accordance with the market shortage and surplus it will affect the profitability of the firm. In the situation of surplus the producer need to reduce the price in order to attract the customers. If he didn’t do so the customers will not make further purchase form the particular producer. Thus the number of loyal customers wills decreases. On the other hand in the case of market shortage the produce must increase the price and distribute product only to limited customers. It is mainly done to balance the situation. But if producer make no changes in price in such a situation then the available stock will finish within seconds. It finally leads to the shutdown of the firm.

2) If no price changes is made by the company in the csa eof srplus then the customers will not purchase he product and it lead to inefecient market. Customers will not be able to purchase goods due to high price and later it leads to economic imbalance. And in the situation of marker shortage the customers will benefit out of it. The normal customers also will be able to make purchase and enjoy the shortage