Alfred Marshall defined the equilibrium price as follows: when the real volume of production exceeds the equilibrium level, the supply price becomes higher than the demand price. This will mean that it will be possible to sell goods only at the price of demand, that is, below the cost price.
Obviously, there will be few people willing to produce goods on such terms. The supply will fall until it reaches an equilibrium level. At the same time, the price will gradually rise to equilibrium. In the field of motivating people to act rationally, Marshall notes the limitation of selfishness. The economist argues that a person’s desire to receive high wages is due not to hoarding but to an altruistic desire to provide for the family.
A practical example of an equilibrium price can be the following situation: a store produces 1000 units of goods and sells them at retail for $ 10,000 apiece. No one wants to buy them at that price. To increase demand, the store reduces the price to $ 8,000. There are 250 buyers in this price category.
Then the store reduces the retail price to $ 5,000 and gains a total of five hundred customers. With a further reduction in the price to $ 2,000, a thousand buyers of the product appear. At this price point, supply equals demand. Therefore, $ 2,000 is the equilibrium price for this product. A striking example of a person acting rationally is Jay Gatsby from The Great Gatsby, who aspired to wealth. For him, wealth was a tool for achieving an altruistic goal — winning Daisy’s love.