When inventories are rising, businesses have incentives to decrease quantity supplied because price is less than marginal benefits.

Question

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When inventories are rising, it typically indicates that the quantity supplied is exceeding the quantity demanded at the current price, suggesting that businesses might lower prices or decrease quantity supplied to balance supply and demand, not because price is less than marginal benefits but because they want to reduce excess inventory and align with market demand.

When Inventories Are Rising, Businesses Have Incentives to Decrease Quantity