Explain how the forms of demand supply will eliminate a market surplus

1 answer:

jeka943 years ago

8 0

Two or three major things will affect this in a free market:

As a surplus develops, prices will drop because of oversupply.
As prices drop, profits drop, and production will be shifted to more profitable products.
If a residual surplus remains, it will be sold off at even lower discounted prices, because maintaining an excess supply is expensive, in terms of investment in product that is not returning anything on the investment, and additional losses due to warehousing or storage.

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