Excess supply

A supply overhang ( English producer surplus ) is in the business before, when on a market that offer the demand exceeds. The opposite is the excess demand .

General

Functioning markets tend to balance supply and demand at the market price or equilibrium price ; there is market equilibrium . On the other hand, excess supply is an indication of market imbalances. If the providers increase their supply of goods or services - for whatever reason - when there is a demand , an excess supply arises: ${\displaystyle D}$ ${\displaystyle S}$

${\displaystyle S>D}$.

The provider can then not (fully) sell his maximum profitable amount because there is no demand for this. The price mechanism ensures price reductions, which turn the previously latent demand into consumer demand. Because when prices fall, demand increases. This overhang gives the competitors an opportunity to undercut prices and / or reduce their capacities . As a result of these adjustments , the excess supply disappears after a while and the market equilibrates. The monetary counterpart is the money overhang .

Causes and consequences

Overhangs in supply are characteristic of buyer's markets , where buyers have greater bargaining power . A supply surplus can develop above all if the competition on the supply side is very strong and the demand side has reached a certain level of market saturation . The main cause is usually overproduction . The excess supply occurs above the equilibrium price. It tends to lead to falling prices and has a deflationary effect. On non-functioning markets, the state will regulate by interventionism intervene, as earlier in the agriculture in butter mountain or on the foreign exchange market through foreign exchange intervention . The state tends to set minimum prices in the event of excess supply . For example, high unemployment is an indicator of excess labor supply on the labor market , so that because wages are falling, the state helps secure the subsistence level of workers through minimum wages .

Demarcation

In terms of model theory, the supply surplus and demand gap are the same, but the difference between the two lies in the cause of the difference and in the effects of the change in quantity. For example, a decline in the propensity to invest with a given loan interest results in an excess supply on the credit market , which corresponds to a resulting gap in demand on the capital goods market . In the case of a supply surplus, the price decreases as the quantity increases, while in the case of a demand gap, both price and quantity decrease.

Any excess supply is always due to the activities of the providers. As part of the “anti-cyclical reaction”, farmers try to compensate for a loss of income due to falling agricultural prices by increasing supply . This can lead to a supply surplus, but this does not represent a demand gap because there has been a change in supply behavior. Conversely, there is a demand gap when there is a decline in demand without the supply situation having changed.

Individual evidence

1. ↑ Walter Kortmann, Microeconomics: Application-related Basics, 2006, p. 302, FN 1
2. ↑ Walter Kortmann, Microeconomics: Application-related Basics , 2006, p. 409
3. ↑ Lothar Wildmann, Introduction to Economics, Microeconomics and Competition Policy , Volume I, 2007, p. 55
4. ↑ Lothar Wildmann, Introduction to Economics, Microeconomics and Competition Policy , Volume I, 2007, p. 55 f.
5. ↑ Constantin von Dietze , Zwangssyndikate als Mittel der Agrarpreispolitik , in: Jahrbücher für Nationalökonomie und Statistik, Volume 146, 1937, p. 137