cit an instance in which a surplus of a product led to decreased price.
Think about sales in your retail stores. If the price is reduced, then the store must have a surplus.
An instance in which a surplus of a product led to a decreased price was the oversupply of crude oil in 2020.
To understand why this led to a decreased price, we can look at the basic principles of supply and demand. When there is a surplus, it means that there is more supply available than there is demand for the product.
In the case of crude oil, the global COVID-19 pandemic resulted in a significant decrease in the demand for oil due to lockdowns, travel restrictions, and reduced economic activity. However, oil producers were initially slow to curb production levels, resulting in an oversupply of oil.
With a surplus of oil and decreased demand, oil storage facilities quickly reached their capacity. This forced producers to take drastic measures such as reducing production and even paying buyers to take the excess oil off their hands.
As a result, the surplus of oil put downward pressure on prices. Oil prices plummeted to historically low levels, with the price of crude oil turning negative briefly in April 2020. This meant that producers were essentially paying buyers to take the oil, highlighting the severity of the surplus and lack of storage options.
Hence, the surplus of crude oil caused by the decreased demand during the pandemic led to a significant decrease in oil prices.