Supply and Demand A major department store chain is planning to bring in a new l

Question

Supply and Demand

A major department store chain is planning to bring in a new line of athletic clothing in hopes of filling the void left by the impending closing of all Sports Authority stores. Most of the department managers agree on quantities and prices with the exception of one sweatshirt. Headquarters forecasts the following market situation for the sweatshirts:

Quantity Demanded Price Quantity Supplied

5,000 $20 2,000

4,000 $30 2,500

3,000 $40 3,000

2,000 $50 3,500

1,000 $60 4,000

Department managers want to price the shirts at $50. Explain what problem will arise if they follow the higher-price strategy? Explain

Explanation / Answer

At price of $50 per sweatshirt, 2,000 sweatshirts will be demanded while 3,500 sweatshirts will be supplied.

This indicates that at price of $50 per sweatshirt, quantity supplied exceeds quantity demanded.

When quantity supplied exceeds quantity demanded, surplus tends to occur.

This occurence of surplus indicates that pricing shirts at $50 per sweatshirt will result in unslod stock being left with department store chain.

Thus, department store chain will left with unsold stock of 1,500 sweatshirts if it follows the higher price strategy.

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