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Question
What causes an increase in the inventory stock?
What causes an increase in the inventory stock?
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Solution
An increase in inventory stock is caused by two factors:
(i) Unexpected fall in demand in the current year. Example: Producers may have expected demand to the tune of 50,000 umbrellas but, owing to the failure of monsoon, only 10,000 umbrellas are sold during a year. Accordingly, 40,000 umbrellas are added to the existing stock.
(ii) An expected rise in demand in the near future: Producers may expect a spurt in demand (and therefore, an increase in price) in the near future. Accordingly, they pile up stocks during the current year.
An increase in inventory stock is caused by two factors:
(i) Unexpected fall in demand in the current year. Example: Producers may have expected demand to the tune of 50,000 umbrellas but, owing to the failure of monsoon, only 10,000 umbrellas are sold during a year. Accordingly, 40,000 umbrellas are added to the existing stock.
(ii) An expected rise in demand in the near future: Producers may expect a spurt in demand (and therefore, an increase in price) in the near future. Accordingly, they pile up stocks during the current year.
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