Wednesday, July 25, 2012

Sale 50% off designer brands

Good morning everyone. Today I would like us to discuss the idea of sales. We all know of course that every year around this time, stores are selling off their merchandise at discounted prices. The reason is simple enough. To make room for new merchandise for the new season. But how do stores decide on the discounted prices?
It is all a matter of supply and demand. The point is that the original price (before the discount) is actually too high. When we bring demand and supply together, they determine what the price of the product should be. Looking at the following graph, the price for the particular product should be P*.
However, before the sales, stores charge P2 for their product resulting to a disequilibrium. At P2, we can see that quantity supplied is greater than quantity demanded. In other words we have excess supply or a significant amount of the product that remains unsold. During sales period, the price is reduced to P* and the remaining amount is sold. (There is also a possibility that the discounted price falls below P* but we are not going to touch on this).

The moral of the story is that if the store is selling at a discount, then it was charging too high of a price to begin with. So shop wisely during the sales period.

Have a nice "sales" day!


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