How Do Businesses Solve the Surplus Problem

How Do Businesses Solve the Surplus Problem - absorb the...

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How Do Businesses Solve the Surplus Problem? There were many ways to solve the problem of surpluses. 1. Occasionally, a store simply broke the manufacturer's policy . The store lowered the price to get rid of the surplus. The manufacturer had threatened that the store would be prohibited from selling the manufacturer's product; the store either believed that the manufacturer would not carry-out the threat or did not care. For example, Crown Books began lowering the prices of its books and a company called Discount Records began lowering the prices of phonograph records. 2. More likely, stores would try to get around the price floor without actually violating. (a) One common solution was to provide more service for the same money . Stereo stores could add free CDs or other free accessories. Washing machine stores used to virtually give away the dryer. Gas stations gave away glasses, knives, and Blue Chip Stamps. (b) A second solution was to simply
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Unformatted text preview: absorb the surplus . Your textbook producers would have a surplus of textbooks. At the end of each edition, the books would be returned to the publisher and the paper was recycled. (c) A third solution was to change the name of the product in order to reduce the price. Surplus gasoline was sold to independent dealers who would sell it as Thrifty, 7-11, or Discount Gas at a lower price. Surplus liquor was bottled with a different label and sold as Slim Price, or Yellow Wrap at a lower price. Surplus washing machines and refrigerators were sold, for example, to Sears and marketed as Kenmore at a lower price. When automobiles were fair-traded, the dealers could not lower the price; however, they would give a trade-in value that was much greater than the trade-in car was actually worth. The main point here is that, even if someone interferes with the market process, there are powerful forces to return to equilibrium...
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This note was uploaded on 01/12/2012 for the course ECON 201 taught by Professor Joyce during the Fall '07 term at Drexel.

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How Do Businesses Solve the Surplus Problem - absorb the...

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