Reduction of surpluses. Surplus goods

Buzukova E.A., consultant, specialist in assortment management

According to statistics, the shortage of goods is one of the most acute problems for both the seller and the buyer and is often estimated at about 8% of the total turnover. According to another, no less sad statistics, in large stores, surplus goods (often called “illiquid stock”) make up to 20% of the entire assortment!

In other words, getting rid of these two misfortunes is extremely difficult. Both are often the result of poor planning and insufficient control over consumer demands. The healing process can drag on for months, and as a result, getting rid of the global shortage syndrome, the store often ends up with excess inventory.

What is more dangerous for the company? Deficiency or surplus? By far the most dangerous situation is to have a deficit in one good and a surplus in another. Conversely, it is best to have neither. However, let's not close our eyes to the obvious - there were, are, and may still be deficits and surpluses. It is necessary to know the enemy by sight, so let's take a closer look at these two common phenomena.

Deficit. Its causes and consequences.

A shortage is an excess of demand over supply. A shortage indicates a mismatch between supply and demand and the absence of a balancing price.

Deficiency can be temporary or permanent. But in any case, its consequences are quite obvious - the company receives less profit. However, not all so simple. If the deficit is of a permanent protracted nature, then the consequences can be sadder than it seems at first glance:

• Loss of profit due to too low a price;
• Direct losses due to lack of sales;
• Deterioration of the store's image in the eyes of customers: "There are never the right products here";
• Loss of potential and real customers;
• Emptiness on the shelves of stores, empty counters;
• Growth in sales from competitors who have such a product;
• Costs due to actions aimed at eliminating the shortage - moving goods on the shelves, urgent search for a substitute product;
• Wasted money on an advertising campaign or tasting;
• Stress among employees and, as a result, their demotivation.

The consequences of shortages are more related to the external environment of the store and are especially dangerous for a company that is in a stage of growth and development, when winning customers and their loyalty is a strategic goal.

Let's consider the possible factors why we have dissatisfied buyers, nervous sellers and the lack of goods in stock:

1. Unbalanced price (demand outstrips supply). A shortage usually indicates low supply caused by a low price. “They are snapping up like hot cakes,” we say, implying that the goods go quickly. Too fast. So fast that we can't keep up with the increased demand. A striking example is a product during sales. A discount of up to 50% has been announced, and as a result, people are pouring into the store, buying up everything that has yellow price tags. Who doesn't want to buy candy for half the price? However, not always only the price is the cause of the shortage.

What to do? Raise the price.

1. Mistakes in procurement planning and sales analysis. As a rule, this reason lies in people who, for some reason, do their job poorly. Perhaps they are not trained, perhaps they do not see the connection between the purchased and sold goods. Either way, without serious sales analysis and precise planning, a company quickly ends up with an unbalanced inventory. The manager of the production company says: “When we first started producing these dumplings, no one knew how they would be sold. We made a trial batch and, surprisingly, it went very well. Then we launched another batch into production. Our sales department enthusiastically set about "promotion" of the product. A week later, wholesalers almost smashed the plant - so great was the demand for this product. And everyone wanted it immediately, but our production could only satisfy half of the entire demand... And a month later, customers began to refuse purchases, citing a too long waiting period... People in stores tried dumplings, but the lack of goods on the shelf led to the fact that all efforts on the promotion were wasted. The lack of accurate forecasts and planned purchases leads to a direct loss of customers. They tend to forget about a new product if they don't see it on sale for a long time.

What to do? Teach buyers how to plan, understand why the analysis does not show the whole picture. Maybe the point is in the incorrect accounting of positions - when “there is a computer”, but not in the warehouse?

1. Changing the current market situation (appearance of a new fashion, trend, law). A familiar picture, isn't it? Just yesterday, a hole in jeans seemed like a disaster. And today, young shoppers roam stores looking for the most tattered and frayed items. The new healthy lifestyle trend has shoppers asking and sellers rushing to fill warehouses with products labeled "0 calories" or "low fat" or "no soy." If yesterday a new law was passed that all children under 12 years of age must be transported only in a child car seat, then there is a possibility that such car seats will suddenly begin to be in increased demand.

What to do? Respond to customer requests and new laws in a timely manner, keep abreast, make market research your direct responsibility. Or wait until the end of the law ...

1. Active advertising orPRcampaign. Real life story: “We have a regular store that sells a variety of products from different manufacturers. Suddenly, buyers begin to actively ask for “that yogurt that is in the advertisement.” We have never sold it so actively! We begin to understand, and we see that the manufacturer has launched active advertising on television and in family magazines. We wanted to make a surprise. If we had known about this promotion in advance, of course, we would have prepared and increased the inventory of this yogurt…”. In our country, people trust advertising and actively buy the advertised product. Therefore, such a "sudden" attack on the consumer does not lead to anything but problems and shortages.

What to do? Educate suppliers by explaining to them what the consequences of such activities are. Before any promotion, increase orders according to the planned increase in demand.

1. Logistic problems. The item may be correctly ordered. It can be priced right. It is properly advertised. But if for some reason it is not delivered to the warehouse or is late for the store, there is a high probability of being in a state of shortage. This is especially true for perishable goods (meat, fish, dairy products, bread), where one day of delay can reject the entire batch. If the cargo moves to the store for four days instead of the planned two days, then all ideal planning comes to naught - the store gets two days of work with empty shelves. Sometimes this is enough to lose many regular customers and earn the image of the store "where there is never anything."

What to do? Work with those suppliers and transport companies that take responsibility for the delay of the cargo. Or not work with those who constantly let you down. After all, it's your money.

1. The goods are ordered without taking into account the complexity. There is a product whose sales affect the sales of another - for example, champagne and sweets, flour and yeast, green peas and mayonnaise. In such a case, the qualifications of the manager who draws up the purchase order can be critical. “In our company, orders for beer are taken by one manager, and another manager is responsible for snacks, chips, crackers and nuts. The trouble is that they operate separately from each other. As a result, we get chips, but the beer has not yet arrived ... ”. The shortage of one product leads to the difficulty of selling another.

What to do? Understand the qualifications and motivation of your staff. Or deal with the categories of goods - who is responsible for what. Are buyers motivated enough for such a result as the sale of goods?

1. Social and environmental factors. Weather, ecology, epidemics can provoke an unexpected high demand for a product. If the summer turned out to be very hot, then the demand for ice cream and soft drinks may exceed the supply by several times. An unexpected shutdown of water in the area provokes a demand for bottled water. During the SARS epidemic, the demand for respirators in China jumped tenfold! Such a shortage is in the nature of an outbreak and ends as abruptly as it begins.

What to do? You can wait - such phenomena pass quickly. You can have time to respond to demand, quickly purchase the required product and earn decently on the increased demand.

Surplus goods. Ways to sell surplus.

Surplus stock can be:

But before the necessary steps are taken, it is necessary to understand the causes of the surplus:

1. Unbalanced price(the price is too high for this market or for this type of product). No one will overpay for a product or service if the price on the market is already set or exceeds reasonable limits.
2. Expired or expiration date. The store sells food products, including perishable goods (for example, fish), or has in its assortment products with a limited shelf life (household chemicals, cosmetics). Failure to sell it within the required period leads to the formation of substandard goods. It is practically not subject to further processing and sale.
3. Mistakes in sales forecasts. The buyer of one of the large trading companies says: “When we first started buying this vegetable juice, no one knew how it would be sold. We brought a batch to sample and, surprisingly, it went very well. Then we ordered three more containers of this juice ... And sat down with a six-month supply - all of a sudden, customers who were actively buying juice at first stopped taking it at all, They tried it and did not like it ... ". Purchasing goods on the "maybe" and leads to such sad results.
4. Overbuying. For example, we sell 30-32 bottles of wine per month. But the purchased batch is 24 bottles - this is the minimum packaging from the supplier's warehouse. We cannot buy less and have to buy more - 2 batches of 24 bottles - to meet the demand. If we do not stimulate demand for this wine, we will soon find ourselves in a situation of overstocking.
5. Commodity cannibalism(the appearance of one product crowds out the sale of another). In order to expand the assortment, the company introduced cheaper milk of good quality into the assortment. As a result, the demand for milk of another brand fell, and after a short time there was an excess of this product in the warehouse.
6. Change in consumer fashion or taste. The emergence of DVD technology on the market has pronounced its verdict on video cassette recorders. Fashion doesn't change as quickly in food as it does in manufactured goods markets, but the classic example is the bouillon cube fashion that came into being and then quickly faded. At first they were in great demand, then the consumer "ate" ready-made food and turned his eyes towards a healthy lifestyle. At one time, soy products were very popular, but now there is a lot of information that genetically modified components are often found in soy. As a result, the demand for soy and products containing it has fallen sharply.
7. Legislative acts (prohibition on the sale of products). The ban on the sale of poultry meat in some countries due to the threat of an epidemic of bird flu has led to the fact that millions of tons of chicken meat have been transferred to surplus, and then to substandard goods. The introduction of censorship on advertising beer led to a decline in sales
8. Insufficiency of goods, erroneous proportions when ordering complete goods. As a result, there is a deficit for some goods, and a surplus for others. The director of one vegetable pavilion says: “We sell vegetables. If we make a mistake with the order of potatoes and bring less, then there will certainly be a surplus of beets in the warehouse - this product, as a rule, is bought together. Beets are rarely sold separately from potatoes, but potatoes can be sold without beets.”
9. Reserving in anticipation of an increase in demand or prices(in wholesale companies). Managers can issue additional invoices to protect themselves in the event of a shortage. If the purchasing department is not aware of such “reservation” facts, then the delivery of goods to the warehouse continues. After a short time, it turns out that the goods were in reserve not at the request of customers, but at the will of the sellers and the goods were not provided with real demand.

Of course, there are a thousand reasons to keep inventory in stock. But it must be understood that if the product is not for sale, then it does not contribute to the generation of profit for which the business exists. Purchased goods are related funds. You have invested them. And it doesn't matter how much these reserves cost now - there is no money left. And although this is not the best option - to sell the product for a penny, but perhaps it is better than believing that one day the client will come to his senses and buy all the dusty piles of cans in the warehouse. Don't get used to your reserves! The goal of inventory reduction is to get rid of unnecessary items at the best price or at the lowest cost. This can be done in different ways:

1. Sale with a discount or a global price reduction.
2. Stimulation of sales staff. You can assign monetary or in-kind remuneration to sellers for the sale of "illiquid assets". This works especially well if the customer can choose between several types of goods.
3. Selling to competitors at preferential prices. Perhaps you just have an excess of a well-selling product, and your competitor around the corner is in dire need of it. Why not try?
4. Promotions to stimulate demand for this product(artificial creation of demand). Requires additional investment in advertising, but often brings good results (for example, hold a wine tasting or arrange a gourmet corner where cheese and grapes will be laid out along with wine)
5. Creating an artificial scarcity. Sometimes it is enough just to announce that there will be no deliveries of goods for the next two weeks (for example, due to holidays or holidays). This helps to optimize stock if the item has good turnover but is overstocked.
6. Return to supplier or manufacturer. The best time for this type of negotiation is in the lead-up to an agreement to purchase a new product line or a large purchase order. Case study: “We just opened a store and took the advice of a supplier to buy a batch of expensive wines. It did not work, and for three months our warehouses kept a stock of these wines in the amount of almost $ 4,000. During this time, our relationship with the supplier has developed and moved to a credit basis. One fine day, we asked him to take back this product, which was so incorrectly imposed on us. The supplier refused. Then we negotiated that we would be able to repay our loans only if the debt was restructured at the expense of this wine. As a result, the supplier in parts on account of our debt bought this batch from us.” Naturally, this method is only good for those products that can be stored for a sufficient time under suitable conditions.
7. Creation of "kits"(in socialist times, this was called "loaded"). Stale goods are given as a bonus or as a gift. It is also possible to sell the surplus on the principle of "two in one" ("when you buy two cans of peas, you get a third can (or a can of corn) for free!").
8. Sale of goods to own personnel or use for the needs of the company. In some stores, there is a culinary department, where goods are transferred with an approaching expiration date. The main thing here is the strictest quality control of such products, so as not to violate the real terms of implementation in any case - the consequences can be the most sad. One of the most famous Western companies practiced a method of selling to employees goods with an expiring (by no means expired!) Expiration date at symbolic prices. However, soon the abuses (resale in the markets) on this basis became so obvious and large that this practice was discontinued. This way of getting rid of excesses is as effective as it is dangerous. Before you resort to it, make sure that you are able to control the entire chain of movement of goods.
9. Carrying out charitable actions or donations. Give the product to those who may need it. You will not only get rid of excesses, but also do a good deed. The main thing is to inform as many people as possible about this good deed ...
10. Last resort - throw away unwanted products. In the end, this is more correct than admiring it for weeks and wasting precious storage space. But observe the conditions of disposal, that the "sausage cycle in nature" did not work out ...

As you can see, there are enough ways to get rid of commodity surpluses. And this must be done - if only because excess inventory requires significant company resources - storage in a warehouse, frozen funds, inventories, accounting and analysis, and so on. The greatest danger of an excess of goods is for a company if it is at the stage of introduction to the market or at the stage of survival - that is, when resources and funds are most needed. If for a company the external environment is less important than solving problems inside, then the surplus can be deadly for it.

Market equilibrium- such a situation in the market, when the quantity of demand is equal to the quantity of supply (equilibrium volume is formed), the demand price is equal to the supply price (equilibrium price is formed). Neither the buyer nor the seller has an incentive to change market behavior.

Commodity deficit:

There are three basic equilibrium models:

- Web-like model. Used to explain equilibrium in special markets (long lead times, agricultural markets). Feature: the orientation of the buyer to current prices, and the manufacturer - to the prices of the previous period.

- The Walras model. Used to explain equilibrium in markets in the short run. Both buyers and sellers play an active role in it. The competition of buyers causes the price to rise and sellers to decrease.

Marshall model. Explains equilibrium in the long run. In this model, the seller plays an active role. It focuses on the discrepancy between bid and offer prices. When the demand price is exceeded, the supply of goods increases; when the supply price is exceeded, the supply decreases.

Both the buyer and the seller benefit from the market exchange, this is due to the existence of consumer and producer surpluses. These are interrelated values ​​that reflect the interaction of supply and demand in a particular market for goods and services.

Consumer surplus - additional utility or additional benefit received by the consumer due to the fact that the price of the goods or services he buys turned out to be lower than the maximum that he was willing to pay. The total consumer surplus is measured as the area below the price level to the left of the demand curve.

Producer surplus - additional income of the owner of factors of production, arising from the fact that the market price of the product turned out to be higher than that at which the producer was ready to sell it (i.e., direct or indirect utility received is more than the utility of what is abandoned). Total producer surplus is measured as the area between the price level and the marginal cost curve to the left of the supply curve.

Consumer surplus peaks under perfect competition, while producer surplus rises as the market becomes monopolized. The total surplus is a measure of the allocation efficiency of resource use.

Surplus stock can be:

• Reversible, but too big. Then it makes sense in the first place to reduce the volume of purchases of this product.
• Have a slow turnover. In this case, it is more correct to first reduce the price and stimulate sales.
• · "Dead", that is, not sold at all. If the consumption of the goods for three months 1 was not made, then it falls into the category of "dead". In this case, you can try to perform other actions.

But before the necessary steps are taken, it is necessary to understand the causes of the surplus:

• 1. Unbalanced price (the price is too high for this market or for this type of product). No one will overpay for a product or service if the price on the market is already set or exceeds reasonable limits.
• 2. The expiration date or sale has expired. The store sells food products, including perishable goods (for example, fish), or has in its assortment products with a limited shelf life (household chemicals, cosmetics). Failure to sell it within the required period leads to the formation of substandard goods. It is practically not subject to further processing and sale.
• 3. Mistakes in sales forecasts. The buyer of one of the large trading companies says: “When we first started buying this vegetable juice, no one knew how it would be sold. We brought a batch for testing and, surprisingly, it went very well. Then we ordered three more containers of this juice ... And they sat down with a six-month supply - all of a sudden, customers who first actively bought juice stopped taking it at all, They tried it and didn’t like it ... ". Purchase of goods "maybe" and leads to such sad results.
• 4. Overbuying. For example, we sell 30-32 bottles of wine per month. But the purchased batch is 24 bottles - this is the minimum packaging from the supplier's warehouse. We cannot buy less and have to buy more - 2 batches of 24 bottles - to meet the demand. If we do not stimulate demand for this wine, we will soon find ourselves in a situation of overstocking.
• 5. Commodity cannibalism (the appearance of one product crowds out the sale of another). In order to expand the assortment, the company introduced cheaper milk of good quality into the assortment. As a result, the demand for milk of another brand fell, and after a short time there was an excess of this product in the warehouse.
• 6. Changing the fashion or taste of consumers. The emergence of DVD technology on the market has pronounced its verdict on video cassette recorders. Fashion doesn't change as quickly in food as it does in manufactured goods markets, but the classic example is the bouillon cube fashion that came into being and then quickly faded. At first they were in great demand, then the consumer "ate" ready-made food and turned his eyes towards a healthy lifestyle. At one time, soy products were very popular, but now there is a lot of information that genetically modified components are often found in soy. As a result, the demand for soy and products containing it has fallen sharply.
• 7. Legislative acts (prohibition on the sale of products). The ban on the sale of poultry meat in some countries due to the threat of an epidemic of bird flu has led to the fact that millions of tons of chicken meat have been transferred to surplus, and then to substandard goods. The introduction of censorship on advertising beer led to a decline in sales
• 8. Insufficiency of goods, erroneous proportions when ordering complete goods. As a result, there is a deficit for some goods, and a surplus for others. The director of one vegetable pavilion says: “We sell vegetables. If we make a mistake with the order of potatoes and bring less, then there will certainly be a surplus of beets in the warehouse - this product is usually bought together. Beets are sold less often, but potatoes can be sold and without beets.
• 9. Reservation in anticipation of an increase in demand or prices (in wholesale companies). Managers can issue additional invoices to protect themselves in the event of a shortage. If the purchasing department is not aware of such "reservation" facts, then the delivery of goods to the warehouse continues. After a short time, it turns out that the goods were in reserve not at the request of customers, but at the will of the sellers and the goods were not provided with real demand.

Of course, there are a thousand reasons to keep inventory in stock. But it must be understood that if the product is not for sale, then it does not contribute to the generation of profit for which the business exists. Purchased goods are related funds. You have invested them. And it doesn't matter how much these reserves cost now - there is no money left.

And although this is not the best option - to sell the product for a penny, but perhaps it is better than believing that one day the client will come to his senses and buy all the dusty piles of cans in the warehouse. Don't get used to your reserves! The goal of inventory reduction is to get rid of unnecessary items at the best price or at the lowest cost.

This can be done in different ways:

• 1. Sale with a discount or a global price reduction.
• 2. Stimulation of the selling personnel. You can assign monetary or in-kind remuneration to sellers for the sale of "illiquid assets". This works especially well if the customer can choose between several types of goods.
• 3. Selling to competitors at preferential prices. Perhaps you just have an excess of a well-selling product, and your competitor around the corner is in dire need of it. Why not try?
• 4. Actions to stimulate demand for this product (artificial creation of demand). Requires additional investment in advertising, but often brings good results (for example, hold a wine tasting or arrange a gourmet corner where cheese and grapes will be laid out along with wine)
• 5. Creation of artificial scarcity. Sometimes it is enough just to announce that there will be no deliveries of goods for the next two weeks (for example, due to holidays or holidays). This helps to optimize stock if the item has good turnover but is overstocked.
• 6. Return to supplier or manufacturer. The best time for this type of negotiation is in the lead-up to an agreement to purchase a new product line or a large purchase order. Case study: “We just opened a store and took the advice of a supplier to buy a batch of expensive wines. It didn’t work, and for three months we kept a stock of these wines worth almost $ 4,000 in our warehouses. During this time, our relationship with the supplier developed and We switched to a credit basis. One fine day, we turned to him with a request to take back this product, which was so incorrectly imposed on us. The supplier refused. Then we negotiated that we would be able to repay our loans only if we restructured the debt due to this wine As a result, the supplier bought this batch from us in parts on account of our debt." Naturally, this method is only good for those products that can be stored for a sufficient time under suitable conditions.
• 7. Creation of "sets" (in socialist times, this was called "to load"). Stale goods are given as a bonus or as a gift. It is also possible to sell the excess on the principle of "two in one" ("when you buy two cans of peas, you get a third can (or a can of corn) for free!").
• 8. Sale of goods to own personnel or use for the needs of the company. In some stores, there is a culinary department, where goods are transferred with an approaching expiration date. The main thing here is the strictest quality control of such products, so as not to violate the real terms of implementation in any case - the consequences can be the most sad. One of the most famous Western companies practiced a method of selling to employees goods with an expiring (by no means expired!) Expiration date at symbolic prices. However, soon the abuses (resale in the markets) on this basis became so obvious and large that this practice was discontinued. This way of getting rid of excesses is as effective as it is dangerous. Before you resort to it, make sure that you are able to control the entire chain of movement of goods.
• 9. Implementation of charitable actions or donations. Give the product to those who may need it. You will not only get rid of excesses, but also do a good deed. The main thing is to inform as many people as possible about this good deed ...
• 10. Last resort - throw away unwanted products. In the end, this is more correct than admiring it for weeks and wasting precious storage space. But observe the conditions of disposal, that the "circle of sausage in nature" did not work out ...

As you can see, there are enough ways to get rid of commodity surpluses. And this must be done - if only because excess inventory requires significant company resources - storage in a warehouse, frozen funds, inventories, accounting and analysis, and so on.

The greatest danger of an excess of goods is for a company if it is at the stage of introduction to the market or at the stage of survival - that is, when resources and funds are most needed. If for a company the external environment is less important than solving problems inside, then the surplus can be deadly for it.

If the real market price (P 1) is below the equilibrium price P e , then the volume of demand (Q D) exceeds the volume of supply Q S , there is shortage of goods(DQD). The scarcity of a good tends to increase its price. In this situation, buyers are willing to pay a higher price for the product. The pressure from the demand side will continue until equilibrium is established, i.e. until the deficit becomes zero (DQ D =0).

The law of diminishing marginal utility (successive increase in the consumed good leads to a decrease in utility from it) explains the negative slope of the demand curve (D). That is, each consumer, in accordance with the decreasing utility of the goods, buys more of it only if the price decreases.

Demand curve can be used to determine gain (surplus) of the consumer- this is the difference between the maximum price that a consumer can pay for a product (demand price) and the real (market) price of this product. The demand price for a good (P D) is determined by the marginal utility of each unit of the good, and the market price of a good is determined by the interaction of demand (D) and supply (S). As a result of this interaction, the product is sold at a market price (P e) (Fig. 6.2).

balance on the market is called situation when sellers offer for sale exactly the amount of a good that buyers decide to buy ( the volume of demand is equal to the volume of supply ).

Since sellers and buyers want to sell or buy different quantities of a good depending on its price, for market equilibrium it is necessary that a price be established at which the volumes of demand and supply coincide. In other words, the price equalizes the volumes of supply and demand.

The price that causes the volumes of demand and supply to coincide is called the equilibrium price, and the volumes of demand and supply at this price are called the equilibrium volumes of supply and demand.

Under equilibrium conditions, the so-called clearing of the market occurs: there will be no unsold good or unsatisfied demand (buyers who want to buy the good at the established price and who are unable to do so due to the lack of sellers) on the market.

Thus, in order to find equilibrium in the market for a certain good, it is necessary to determine what price will cause in this market such a volume of supply that will correspond to the volume of demand: at this price, sellers will bring to the market exactly as much of the good they have produced as buyers want to carry away. Such a price is called the equilibrium price, and the volume of supply and demand corresponding to it: the equilibrium volumes of supply and demand.

The speed with which the market finds an equilibrium price depends on the "mobility" of its participants and on the ease of information transfer in the market (that is, on the perfection of the market).

Under the equilibrium of the sectoral market understand the optimization of the size of firms in a given industry while reducing the price in the industry market to the level of the minimum average cost of production. Equilibrium in an industry is reached when each firm reaches its own equilibrium.

Demand curve industry shows how many goods will be purchased by all consumers. It decreases as consumers buy more goods at a lower price. The price here is determined by the interaction of all firms and consumers in the market, and not by the decision of an individual firm.

Industry Supply Curve shows the volume of output carried out by the industry at each possible price. The output of an industry is the total supply of all individual firms.

Sectoral equilibrium occurs when the terms:

All industries maximize profits.

All factors of production become variable and the number of firms in the industry changes.

No firm has an incentive to enter or exit the industry, as all firms earn zero economic profit. In other words, the price should be equal to the average total cost. Since entering and exiting an industry is fairly easy, positive or negative economic profits spur firms to change. An industry cannot be in equilibrium if firms are in motion: either entering the industry or leaving it. Long-term equilibrium requires that all changes in the industry be completed.

The price of a good is such that aggregate supply equals aggregate demand.

Thus, the equilibrium of an industry market is understood as the optimization of the size of firms in a given industry while reducing the price in the industry market to the level of the minimum average production costs. Industry equilibrium occurs when the following conditions are met: all industries maximize profits; all factors of production become variable and the number of firms in the industry changes; no firm has an incentive to enter or exit the industry; the price of a good is such that aggregate supply equals aggregate demand.

Market equilibrium can only be considered with respect to a fixed unit of time. At each subsequent moment of time, the market equilibrium can be established as some new value of the market equilibrium price and the number of sales of goods at this price, which are formed during a month, season, year, series of years, etc. but market equilibrium is always a state of the market in which QD = QS (demand = supply). Any deviation from this state sets in motion forces that can return the market to a state of equilibrium: eliminate the shortage (QD > QS) or excess (surplus) of goods on the market (QD< QS).

Thus, a surplus occurs if, at a certain price, the supply of a good exceeds the demand for it.

A good is in short supply if the quantity demanded for the good is greater than the quantity supplied.

Consumers do not always believe that existing prices are optimal. The fact is that the imperfection of the social structure of production appears on the surface as the imperfection of the price system. Public dissatisfaction with existing equilibrium prices forms a fertile ground for government intervention in market pricing. In practice, this results in the establishment of maximum or minimum prices. If the maximum price set by the state ("price ceiling") is below the equilibrium level, then a deficit is formed, if the state sets a minimum price above the equilibrium level (the so-called subsidized price), then a surplus is formed. Fixing prices means turning off the mechanism of market coordination. In conditions when the price is below the equilibrium level, the deficit does not weaken, but increases, moreover, non-monetary costs are added to the consumer's monetary costs. The latter are associated with the search for goods, standing in lines, etc. - they are all deadweight costs that do not serve to expand the production of scarce goods. They settle in the sphere of distribution of a scarce commodity, and do not reach those who actually produce it. The price ceiling "cuts" the surplus of producers and thereby reduces the incentives for its production at those enterprises that have the lowest production costs of this product. Therefore, the deficit does not decrease. On the contrary, those who sell (or distribute) a scarce product are interested in preserving it, since it becomes a source of their income (because it increases the size of non-monetary costs.) Therefore, they will in every possible way promote state regulation of prices under various “plausible” pretexts.

In cases where the price is above the equilibrium, there is a need for additional incentives to restrict supply and increase demand in order to reduce the gap between the subsidized and equilibrium prices. In both cases, the market economy begins to function less efficiently than in conditions of perfect competition.

The balancing function is performed by the price, which stimulates the growth of supply when there is a shortage of goods and unloads the market from surpluses, holding back supply. According to Walras, in conditions of scarcity, the active side of the market is buyers, and in conditions of excess, sellers. According to Marshall, entrepreneurs are always the dominant force in shaping the market.

Any surplus of goods, i.e. commodity surplus, pushes the price of goods down to the point of equilibrium. Any commodity shortage, shortage of goods on the market will push the price of goods up, to the point of equilibrium of supply and demand. Ultimately, an equilibrium price PE will be established, at which QE of goods will be sold on the market.

When the total quantity of a product offered by producers exactly matches the quantity of a product that consumers plan to buy, i.e. and the plans of sellers and buyers coincide, then no one has to change these plans - the market is in a state of equilibrium.

The meaning of balance: at the intersection point (at the equilibrium point) the quantity that the consumer wants to buy and the producer to sell coincides. And only at such a price, when these plans for selling and buying coincide, the price does not tend to change.

Law of Market Equilibrium states that the price of any good changes to bring the demand and supply of the good into equilibrium. Stable balance- a state, deviation from which leads to a return to the same state. Competitive price is the equilibrium price formed in a competitive market. Thus, in a competitive market, provided that the demand for a product depends on its price, an equilibrium market price is established, corresponding to the equalization of supply and demand. The market price is called free, that is, it is free from external dictates, but not free from the laws of the market. Equilibrium volume - the volume of supply and volume of demand in conditions when the price balances supply and demand.

Demand and supply curves, reflecting the plans of buyers and sellers, can be used to graphically demonstrate market equilibrium.

If we compare the planned quantities of sales at each price with the planned quantities of purchased goods at the same prices, we will notice that there is only one price at which the plans of sellers and buyers coincide. This price - $0.40 per pound - is the equilibrium price. If all buyers and sellers build their plans, taking into account the indicated price, then no one will have to change lanes on the go.

Commodity deficit. Let's assume that the price is only $0.20 per pound, and at this price consumers plan to buy 2.5 billion pounds of product per year, but sellers plan to offer only 1.5 billion pounds to the market. When the quantity demanded exceeds the quantity supplied, the difference is called excess demand, or deficit. In most markets, the first sign of a shortage is a sharp decrease in inventory, that is, those stocks of goods that are already produced and ready for sale or use. Sellers usually keep some goods in stock in order to quickly respond to minor changes in demand.

When the number of stocks decreases and falls below the planned, the sellers change their plans. They may try to replenish stocks by increasing output or, if they do not manufacture the item themselves, they may increase the order to the manufacturer. Some sellers will capitalize on the increased demand by increasing the price because they know buyers are willing to pay more. But whatever the details, the result will be a move up the supply curve as the price and quantity of the good increases. Since the deficit puts pressure on the price from below, buyers will also be forced to change their plans. As they move to the left and up the demand curve, they will cut back on their consumption. As a result of changes in the plans of buyers and sellers, the market comes to equilibrium. When the price reaches $0.40 per pound, the deficit will disappear.

Deficit in the service market. In most markets, sellers have inventory, but inventory is not possible in service markets—hairdressers, laundries, and so on. In markets where there is no stock, the sign of shortage is the line of buyers. A queue is a sign that, given the prevailing price, buyers are willing to consume the good faster than producers plan to put it on the market. However, customer requests may not always be met immediately. Customers are served on a first come, first served basis.

Excess goods. Having considered the situation when sellers and buyers expect a price lower than the equilibrium one, let us consider the opposite case. Suppose that for some reason, buyers and sellers expect that the price will be higher than the equilibrium price ($0.60 per pound) and plan their activities accordingly. When the quantity supplied exceeds the quantity demanded for a good, there is excess.

Surplus and inventory. When there is a surplus of product, sellers cannot sell everything they hoped to sell at a given price. As a result, their inventory increases and soon exceeds the level that was planned in case of normal changes in demand. Sellers will respond to inventory growth by changing their plans. Some of them will reduce the output of goods. Others will lower prices to encourage the consumer to consume more, and thus reduce their excess inventory. Others will do both. As a result of these changes, there will be a movement to the left and down the supply curve. As overstocking puts pressure on the price from above, buyers also change their plans. Convinced that the product is cheaper than they expected, they move down and to the right on the curve, the market comes into equilibrium.