overcapacity

Overcapacity occurs when a business or industry produces more goods or services than the market demand requires. This surplus can lead to inefficiencies, such as wasted resources, increased costs, and lower prices, because there isn't enough customer demand to absorb the excess supply. Essentially, overcapacity means the system is operating beyond its optimal level, which can hurt profitability and sustainability over time. It often arises from overinvestment, technological advances, or changes in consumer preferences that outpace production adjustments. Managing overcapacity is important to maintain a healthy balance between supply and demand.