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Seems like an issue of incentives at varying scales. A private business has an incentive to produce the quantity demanded and nothing more. Surplus is a cost,
by evancoop 5y ago
Seems like an issue of incentives at varying scales. A private business has an incentive to produce the quantity demanded and nothing more. Surplus is a cost, and capacity should be designed to meet, not exceed demand. Then, a stress appears on the system, and shortages occur.
A government has an incentive to avoid shortages of specific products and resources. In some industries, this leads to, essentially, a promise to purchase the supply the market does not (agriculture).
Does a similar model need to apply hereafter to certain technological inputs?
- bluGill 5y agoActually capacity is designed to meet the highest demand and scale down for slow times. My company has seen lines go from 100% capacity and turning away customers one year to 20% capacity filling all orders. It is murder on our suppliers and so the most important question we ask when sourcing a new part is can the supplier keep their doors open if we make no orders for two years, yet still meet our peek demand? The reality of the business cycle is on everyone, though some see it worse than others.