Overproduction is a violation of the balance between supply and demand

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Modern economy every year only moves forward. However, movement is impossible without barriers. That is why a number of problems arise on the way to achieving key goals. This article discusses such an attribute of a market economy as overproduction.

Interpretation of the concept

Under overproduction should be understood as the growth of stocks of final marketable products. This happens because of the inability (relatively low aggregate demand among consumers) to cover the entire national product produced in the country. According to the classical model, overproduction is the first reaction to a decline in aggregate demand. It is immediately followed by a decline in prices for commercial products and end-use services, after which wage rates are also reduced. The situation leads to the fact that aggregate supply returns to the level of natural GDP.

Problems of overproduction in history

Mixed market economy appeared in Russia after 1991. In thatperiod, overproduction was revealed due to a sharp drop in aggregate demand, in other words, a transformational recession. At the beginning of 2000, there was background overproduction, which was due to increased supply. How could this happen? It's simple: it was beneficially influenced by the actions of supporters of the bureaucracy and entrepreneurs, as well as cooperation with investors from foreign countries.

Crisis of overproduction

The crisis of overproduction is one of the varieties of a crisis in a market-type economy, which is characterized by a violation of the balance of supply and demand (the former prevails over the latter), actualization of problems in the credit area, unemployment, a significant deterioration in the investment activity of structures, a fall in GDP and GNP, as well as the standard of living in general.

Crisis of overproduction 2008-2010 was marked in Russia and China by a noticeable drop in exports of products. In the represented states, the role of planned institutions in the market economy has increased. However, the Chinese bureaucracy was able to change the orientation of manufacturers of different product categories in order to satisfy domestic demand. Most likely, this is due to the characteristics of the structure of the economic system of the state.

After comparing the results of reforms in China and Russia, it turned out that the "shock" and "gradualist" methods turned out to be quite adequate to the goals set by the bureaucracy. However, the changes in the market economy in Russia had rather serious consequences.socio-economic nature and led to the emergence of fuel and raw material dependence.

Overproduction is a global problem that needs to be addressed if it occurs. That is why the key method of preventing new crises and weakening the overproduction of the background type is the modernization of the state economy.

Results

So, overproduction is a violation of the balance of supply and demand. The problems behind it are:

1. Increasing the amount of unsold product.
2. Scaling down.
3. Declining investment in government structures.
4. Growing unemployment.
5. Decrease in wages of the population.
6. Falling price level.
7. Relevance of underutilization of production capacities.
8. Rising interest rates.
9. Bankruptcy.

When studying the economy of overproduction, it should be understood that in this case there are two key trends. The first will lead to disturbances in balanced growth. The second will ensure the stability of this growth.

It must be remembered that overproduction of goods is often a temporary phenomenon, because sometimes the economy of any country goes through a crisis, but after a certain period of time it returns to its roots. The material base of the phenomenon under consideration is the renewal of fixed capital. In a crisis, one way or another, there is a formation of favorable conditions for the sale.

The key method of overcoming the crisissituation is the renewal of production as a whole, that is, both technology and capacity. In a crisis of overproduction, as a rule, entrepreneurs whose expenditure items were too large, and whose technologies still lagged behind current requirements, usually suffer the most.