How do I get rid of excess supply?

How do I get rid of excess supply?

When the quantity firms supply is greater than the quantity customers want to buy. This is resolved when firms reduce prices to sell off excess supply. Lower prices discourage supply and encourage demand until the excess is removed.

What are the causes of excess demand?

Reasons for Excess Demand:

  • Excess demand may arise due to several factors. Important, among them, are mentioned below:
  • Rise in the Propensity to consume:
  • Reduction in taxes:
  • Increase in Government Expenditure:
  • Increase in Investment.
  • Fall in Imports:
  • Rise in Exports:
  • Deficit Financing:

What causes a shortage of a good?

Possible causes of a shortage include miscalculation of demand by a company producing a good or service, resulting in the inability to keep up with demand, or government policies such as price fixing or rationing. Shortages are quite common in command economies.

How is excess demand corrected?

Fiscal policy measures to correct excess demand are: increase in taxes, reduction in government expenditure, etc. Monetary policy measures to correct excess demand situation are increase in CRR, increase in bank rate, etc.

What can be used to correct excess demand?

Measure to Correct Excess Demand – Explained!

  • In order to correct Excess Demand, the following measures may be adopted:
  • Two major instruments of Monetary Policy, used to decrease availability of credit are:
  • Increase in Bank Rate:
  • Open Market Operations (Sale of securities):
  • Increase in Legal Reserve Requirements (LRR):
  • There are two components of legal reserves:

What causes a deflationary gap?

Causes of deflationary gap A deflationary gap could occur when aggregate demand declines. For example, the global recession reduces foreign demand for domestic products. Exports decline, so do with aggregate demand. A decrease in aggregate demand results in lower real GDP and lower prices levels.

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