Excess Capacity

AAA

DEFINITION of 'Excess Capacity'

A situation in which actual production is less than what is achievable or optimal for a firm. This often means that the demand in the market for the product is below what the firm could potentially supply to the market.

INVESTOPEDIA EXPLAINS 'Excess Capacity'

The amount of excess capacity within an industry is a signal of both the health of that industry and the demand for the products it produces. Excess capacity is also seen as a good thing for consumers, as it is not likely to lead to the price inflation that would be seen in periods of near-full capacity. A company with sizable excess capacity can often lose a considerable amount of money if it is not able to meet the high fixed costs that are associated with producers.

RELATED TERMS
  1. Capacity Management

    The management of the limits of an organization's resources, ...
  2. Aggregate Capacity Management

    The process of planning and managing the overall capacity of ...
  3. Production Possibility Frontier ...

    A curve depicting all maximum output possibilities for two or ...
  4. Economics

    A social science that studies how individuals, governments, firms ...
  5. Microeconomics

    The branch of economics that analyzes the market behavior of ...
  6. Economy

    The large set of inter-related economic production and consumption ...
RELATED FAQS
  1. What's the difference between macroeconomics and microeconomics?

    Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and ... Read Full Answer >>
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Savings

    The Top Ten Economic Indicators In The UK

    We list below ten key economic indicators for the United Kingdom, the world’s 6th-largest economy.
  3. Economics

    What's Aggregate Demand?

    Aggregate demand is a macroeconomic term describing the total demand in an economy for all goods and services at any given price level in a given time period.
  4. Options & Futures

    The Perks of Trading Coffee Options

    As more people begin to trade coffee, we explain how coffee options work, who uses them, what drives valuations, and the risks and rewards.
  5. Mutual Funds & ETFs

    These 4 Precious Metals ETFs Help Combat Inflation

    A look at 4 precious metal ETFs to combat inflation when it hits.
  6. Economics

    What is Deflation?

    Deflation is an economic term used to describe a period of declining prices for goods and services. Decreases in the money supply, government spending, consumer demand and business investment ...
  7. Economics

    What Would Happen If Interest Rates Rise?

    This time around, while U.S. long-term yields have rebounded from their January lows, rates have generally been lower than where they ended 2014.
  8. Forex

    The Impact Of Venezuela's Bolivar Exchange Rates

    Venezuela's complex exchange rate system has been a major cause of its economic woes. We examine the impacts, and the supply and demand of the bolivar.
  9. Economics

    Higher Oil Prices On the Horizon? Maybe Not.

    Despite a decision by some oil companies to reduce the overall supply of oil, a sustained ascent in oil prices might not be on the immediate horizon.
  10. Budgeting

    How Your Government's Budgetary Decisions Impact the Public Sector

    Issues facing the public sector are not unlike some issues facing America’s oldest and largest companies, but with larger and broader impacts.

You May Also Like

Hot Definitions
  1. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
  2. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  3. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  4. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  5. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  6. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
Trading Center