What does Overproduction lead to, economically?

Question

can someone give me a step by step overview of what happens? like inflation? and how?

lol, no it's not for homework. school didn't even start yet. thanks guys, but what about if a country lost many international markets?
How bad does the economy get? and what effect does it have on the people?

Answer 1

Since Oil seems to be a pain in the butt lately lets start with that as a commodity and lets over produce it in Venezuela. When the demand is less then production it causes oil prices to drop. That does two things. One the oil producers make less profit and two you and I save money at the gas pumps. That is on the small scale. On the larger scale a lot of countries major export is oil so when they make less money off of it the country suffers and that country goes into a recession which then causes inflation.

Meanwhile where we live since gasoline prices are going down shipping costs are also going down and our food and clothing and other commodities get cheaper at the store checkout counter. Food crops are cheaper to harvest and drive to market. We can continue to sell to foreign countries at the same rate we were before so we make more profit off the grain and exports which makes our dollar worth more in other countries. That makes our trade value higher so a dollar becomes worth more abroad.

In a nut shell the only country that does not benefit by overproduction is the country over producing. Overproduction also depletes resources and if over production continues for too log then all the commodity is gone so that country has nothing left to trade and that is when things get very nasty like wars and hopefully the country that screwed itself by over producing has not procured Nuclear weapons and a hatred for other countries because that would cause a world war of great proportions all because of over production.

Answer 2

What happened in the US is that overproduction after WWII caused a lot of layoffs, and people weren't buying the products that came off the assembly line. (Manufacturers wanted the perfect factory to be built on the edge of the ocean, so that when things weren't selling, they could just turn the conveyor out over the cliff and dump excess production into the sea). Even the president came out on the radio and said "Buy stuff and keep the economy going". Once the manufacturers got people conditioned through advertising, though, the boom took off, so that they would buy a new car every couple of years, always bigger and better than the last.
It has been a grand ride ever since, with a few drops now and then, but overall, a perpetual growth machine which manages to always add more either through gluttony or debt.
Unfortunately, the end result is collapse, since the overproduction without useful creativity is taking us to a point where we need more resources to build a future than we have. We can keep the present state of affairs going for a while, but not much longer. We will either run out of water, or energy, or metals, or patience with our contrived 'enemies', and end up in long term decline until the consumption again matches what can be produced sustainably.

Answer 3

The economics of any market is determined (crudely speaking) by supply and demand. Let's take iPods: they cost about $200. If they were overproduced, there would be a huge number of iPods on the market and the price would come down. Not bad! But wait: Too much overproduction leads to surpluses of goods and services -- how many iPods could each person possibly want? iPods become devalued. People only want a certain number of iPods (let's say, ten million). Any iPods over that number are waste, pure and simple.

Now on to another economic puzzle: if the government is short of money, why can't it just print more? Think of the money as an iPod: overproducing dollars, or Euros, or yen, or whatever, means that each dollar is worth less. As a country's currency gets devalued, it's trade balance will swing, possibly wildly, toward exports. This can have international consequences (for example, see allegations of China artificially keeping its currency down to spur exports).

In short, overproduction is not good just as underproduction is not good. The trick is keeping it at a happy medium.

Answer 4

If you look at it from a perspective such as the US, then it's easy to deal with over production.

Theoritically, if you have over production then that means there is excess supply and prices should go down because there is simply too much of a commodity in the economy and consumers will be willing to pay less because the commodity is readily available.

Even if it's an open economy, there's no guarantee that everything you will produce will be placed in foreign markets.

Now, if this phenomenon presents itself in one industry, than it's no biggie. Unless your country is practically living off this industry, than you're in trouble.

However, if it's a general phenomenon within your economy, than right off the bat when prices start to fall and profits go down, what you'll see is UNEMPLOYMENT.

This creates a shortage in the income of families and consumers, and demand begins to decrease. So, on top of inventories piling up, consumers begin to reduce spending because people are losing their jobs.

And this becomes a vicious cycle until a depression, much like that of the 1930s, becomes evident.

The solution that was found for that particular problema was to increase public spending, but that's not always possible. The best thing for an economy to do is to plan effectively. This can be done simply by having surveys and other mesaurements of your country's output. Estimating it's output, jobless rate and trade balance will go a long way to determining any potential problems.

For a hug economy like the US, well, they have enough money to deal with a problem like this. For much smaller and weaker economies, an over production scenario can become a nightmare and lead a country literally into the ground.

I am a fan of economic planning because you can't let industries run wild and do whatever they want. The market is the worst parameter by which you can lead your economy's performance.

Answer 5

The worst aspect of overproduction is that it only happens with rubbish like Viagra, luxuries like perfume or poisons like cocaine. Never with anti-malaria drugs, water-treatment plants or schools. The people who die from the lack of these necessities watch while the rich wallow in excess. That's capitalism. Market economics doesn't deliver. Centrally planning an economy sees that when there's overproduction of, say, meat, then some agricultural productive capacity will be switched to providing rice for the poor.

Answer 6

Its simple. Overproduction causes excessive surplus. This causes deflation of the product's value and profit loss. This is why a good business will only operate at 80% efficiency. That's the magic number for guarentee of maximum profit and minimal waste.

Answer 7

If a manufacturer overproduces he is first creating his own excess surplus. This will lead to stocking costs and a need to move out the surplus at reduce prices. This again, leads to lower profits and higher expenditures on the production side. So the company risks profitability. If it is a competitive market, his surplus could have an adverse affect on other similar products by other manufacturers due to the decreased pricing. They might be forced to lower their prices as well, thus their own profits. One of the bottom line effects of all this would be lower wage increases, lower bonuses for employees. That, leads to less consumer spending. The surplus, if not fully evaporated in the reduced marketing, could effect the next year's productivity and margin of profit. ...But the CEO's bonus incentives will be fine! Bet on that!

Answer 8

overproduction leads to loss of jobs as there are too many products being made, and not enough buyers, then once the workers are laid off (as they are also buyers) the purchasing pwer drops even more, leading to in many cases a bankruptcy of a business. Inflation is really more of a political agenda, however, in inflation, the value of a dollar rises, rather it be domestic, or in comparison to a foreign currency like pounds, or yen. In fact there is a way to make money by in a sense, betting, on which currency will be worth more, or increase in worth. You can invest in us dollars, in foreign currency, just the same as in gold, solver, and OIL.

Answer 9

Overproduction = Surplus (supply MORE than demand). Prices lowered to clear stock.

Answer 10

Hello, It could get really bad, I recommend you read a little about The great depression in 1939-1940 not to long ago its super interesting how it occurred over production 5% of American people were super wealthy and 95% poor only making $2000 a year this was one problem the other farmers had no buyers for there product so, they could not pay back the banks and banks now had no money not good.