<p>You are basically asking a dynamic question on the basis of a static model, although this often done for convenience. In a real static model, over production is impossible.</p>

<p>You answered the first part of your question yourself: In the short run the Q2-Q'goods got sold off at a lower price. For the long run: recall that the supply curve is also the industry's marginal cost curve. If producers lower their prices below P2, some of them will start to operate at less than max profit and either go out of business or reduce production, to operate at max profit level again. In the long run we thus move along the supply curve, downwards to point E.</p>

CC BY-SA 3.0
2018-01-18T15:16:08.417Z
"You are asking a dynamic question on the basis of a static model". What does it mean?  "In a real static model, over production is impossible." Why? "In the short run the Q2-Q'goods got sold off at a lower price." So what? People who will buy excess goods will satisfy their demand, thus making remaining goods excess because there will be less people willing to buy them.
KarmaPeasant
CC BY-SA 3.0
2018-01-18T15:53:00.663Z
Given your picture, the original model is of the form Qd=a-b*P, Qs=c+d*P, that is there is no time dimension involved. Price and quantity adjustments happen instantly. Overproduction is impossible because prices and quantities immediately adjust, and shoot back to equilibrium. Given the lower price more people buy the good. The only price at which producers can sell the excess at Q2 is price P1, They might *want* a higher price but they won't be able to sell Q2 if they don't lower the price until P1, thus increasing quantity demand to Q2, at which point the long run from above kicks in
Maarten Punt
CC BY-SA 3.0
2018-01-19T07:29:30.450Z
"Price and quantity adjustments happen instantly. " So what? In order to adjust (no matter how fast) Q producers must collectively decide to destroy excessive goods, NOT sell them. But it would be illegal. Just selling them off for lower prices would make remaining goods excessive because it will increase satisfaction of consumers for the goods. Probably producers in this situation just should sell ALL their goods at P=P1, and next time produce less.
KarmaPeasant
CC BY-SA 3.0
2018-01-18T11:03:53.250Z
2018-01-18T11:03:53.250Z
Maarten Punt
<p><a href="https://i.sstatic.net/Y9AiD.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/Y9AiD.png" alt="enter image description here"></a></p>

<p>Let's assume that there is disequilibrium, namely that $P=P_2$, thus $Q_s &gt; Q_d$. In other words, there is overproduction. This is perfectly competitive market, so competition between producers will make them lower prices in order to get rid of excessive production, thus allowing the market equilibrium (in the point $E$) to be reached. But wait a second! When we said that producers will change price we said nothing about quantity of production. But you can clearly see that in point $L$ (before producers lowered prices) the quantity was equal to $Q_2$, while in point $E$ it's equal to $Q'$, and $Q' &lt; Q_2$. </p>

<p><strong>What happened with all these ${\bf Q}_2$ minus ${\bf Q}'$ goods?</strong> It looks like producers collectively decided to destroy part of their excessive goods in order to reach the point of equilibrium. Because if producers will change only price of their goods (i.e. $Q_s$ is constant) there is NO way they can reach equilibrium without moving their supply curve (or alternatively - without moving the demand curve).</p>

CC BY-SA 3.0
2018-01-18T10:46:00.410Z
Are you assuming that the goods are non-perishable?
Adam Bailey
CC BY-SA 3.0
2018-01-18T13:23:33.280Z
Yes, you are correct.
KarmaPeasant
<markets><price>
It's unclear how market equilibrium is reached in case of overproduction
KarmaPeasant
# It's unclear how market equilibrium is reached in case of overproduction

(Asked by: username_0 on 2018-01-18)

[![enter image description here](https://i.sstatic.net/Y9AiD.png)](https://i.sstatic.net/Y9AiD.png)

Let's assume that there is disequilibrium, namely that $P=P\_2$, thus $Q\_s > Q\_d$. In other words, there is overproduction. This is perfectly competitive market, so competition between producers will make them lower prices in order to get rid of excessive production, thus allowing the market equilibrium (in the point $E$) to be reached. But wait a second! When we said that producers will change price we said nothing about quantity of production. But you can clearly see that in point $L$ (before producers lowered prices) the quantity was equal to $Q\_2$, while in point $E$ it's equal to $Q'$, and $Q' < Q\_2$.

**What happened with all these ${\bf Q}\_2$ minus ${\bf Q}'$ goods?** It looks like producers collectively decided to destroy part of their excessive goods in order to reach the point of equilibrium. Because if producers will change only price of their goods (i.e. $Q\_s$ is constant) there is NO way they can reach equilibrium without moving their supply curve (or alternatively - without moving the demand curve).

**Tags:** markets, price

> **Comments:**
> **username_1**: Are you assuming that the goods are non-perishable?  
> **username_0**: Yes, you are correct.  

---

## 1 answers

### Answer by username_2 on 2018-01-18. Score: 1

You are basically asking a dynamic question on the basis of a static model, although this often done for convenience. In a real static model, over production is impossible.

You answered the first part of your question yourself: In the short run the Q2-Q'goods got sold off at a lower price. For the long run: recall that the supply curve is also the industry's marginal cost curve. If producers lower their prices below P2, some of them will start to operate at less than max profit and either go out of business or reduce production, to operate at max profit level again. In the long run we thus move along the supply curve, downwards to point E.

> **Comments:**
> **username_0**: "You are asking a dynamic question on the basis of a static model". What does it mean?  "In a real static model, over production is impossible." Why? "In the short run the Q2-Q'goods got sold off at a lower price." So what? People who will buy excess goods will satisfy their demand, thus making remaining goods excess because there will be less people willing to buy them.  
> **username_2**: Given your picture, the original model is of the form Qd=a-b*P, Qs=c+d*P, that is there is no time dimension involved. Price and quantity adjustments happen instantly. Overproduction is impossible because prices and quantities immediately adjust, and shoot back to equilibrium. Given the lower price more people buy the good. The only price at which producers can sell the excess at Q2 is price P1, They might *want* a higher price but they won't be able to sell Q2 if they don't lower the price until P1, thus increasing quantity demand to Q2, at which point the long run from above kicks in  
> **username_0**: "Price and quantity adjustments happen instantly. " So what? In order to adjust (no matter how fast) Q producers must collectively decide to destroy excessive goods, NOT sell them. But it would be illegal. Just selling them off for lower prices would make remaining goods excessive because it will increase satisfaction of consumers for the goods. Probably producers in this situation just should sell ALL their goods at P=P1, and next time produce less.  

---

