If a company raises its price for holidays over the equilibrium price the demand will?

Question

If a company raises its price for holidays over the equilibrium price the demand will?

Answer 1

The market will naturally move towards equilibrium...."invisible hand"...and they will end up with a market surplus if retailers don't follow this. But to answer your question...demand will decrease. Any time of year this is true. If the price goes over equilibrium people will stop buying.

However, if the product is inelastic (gas) demand will remain pretty consistant. Holiday items are elastic...people don't have to buy them...and if that company raises its price on a holiday good the consumer can simlpy go to another company.

Answer 2

drop.

Answer 3

Are you trying to answer a test question?

The demand will wane. Meaning if the store only has a limited number of the item in stock until after the holiday, they may raise the price, causing shoppers to slow down a bit.  

You probably aren't old enough to remember gas shortages in the 70's but gas stations would try to raise prices to slow down the consumer demand.  This was thought to be price gouging so they lowered them again.  People lined up for blocks, wasting gallons of gas and hours of time, until the station ran out of gas and would close until the next shipment was delivered.

Holidays are unique in that people will tend to pay more because they really want to give that particular item on the holiday, not after the fact.  So the "equilibrium" price will be higher than normal.  But going beyond that price will slow down demand.  If your a store owner and you have the last one in town, shoppers may be coming to your store because of it.  They may look at the higher price and decide to buy something else instead.  Your store is still getting traffic and making sales.  Once that "most sought after thing" is gone, your store may loose that edge and the shoppers may not come.  

A free market, Supply and Demand economy has its good and bad points.