Can someone explain this to me?
An overproduction of goods can lead to a reduction in consumer surplus.
Can someone explain this to me?
An overproduction of goods can lead to a reduction in consumer surplus.
How? shouldn’t it increase consumer surplus?
As with most everything in supply and demand, if you draw a picture it’s pretty clear.
Suppose that the equilibrium quantity is 100 and the equilibrium price is $10. If the supplier produces 120, the price at which they will sell them will be, say, $11 (upward sloping supply curve). At a price of 11, consumers will buy only, say, 90 (downward sloping demand curve). The consumer surplus at 90 units is less than the consumer surplus at 100 units.
Ok that cleared the confusion.
Somehow I thought, if they overproduced, they would end up reducing price to get rid of the inventory, hence the consumer surplus should increase. Few things are just hard to digest with plain logic
Thanks for clearing it.
now you should go to my other two posts and reply to them as well…