Overproduction

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This article is about the economic concept of overproduction. For the musical term, see overproduction (music).

In economics, overproduction refers to excess of supply over demand of products being offered to the market. Leads to lower prices and / or unsold goods.

[edit] Explanation

Insufficient Effective demand or aggregate demand, so that there is an unplanned accumulation of inventories. It is caused by production to a forecast or plan that proves to be inaccurate; which all plans in a market will be to a greater or lesser degree except by chance.

Where a product is produced to a specification that exceeds the specification required by the customer. This overproduction therefore produces unrequired features that the customer does not value.

Overproduction is one of the "7 Wastes" identified by Taiichi Ohno of Toyota as part of the Toyota Production System and latterly Lean.Economics also refers to much reproduction of a certain group of animals or people.

[edit] Say's Law

Whilst some might think that the existence of general overproduction, if confirmed, would contradict Say's Law. Say's Law states that "The more goods (for which there is demand) that are produced, the more those goods (supply) can constitute a demand for other goods". It is central to the Marxian theory of crisis and to Keynesian economics.

Overproduction differs from underconsumption, in which the excess supply results only from low consumer demand. Whether one is distinguishable from the other objectively is debatable. Overproduction can also arise due to low fixed investment, low net exports, or contractionary fiscal or monetary policy^{[citation needed]}.