Among the following identify the condition where firms face unplanned de-cumulation of inventories.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Unexpected rise in sales.
Unplanned de-cumulation of inventories means that firms are selling more goods than they had anticipated, leading to a reduction in stock (inventory) that was not planned.
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When there is an unexpected rise in sales, firms’ inventory levels decrease more than expected, as goods are sold faster than they can be replenished.
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This is called unplanned de-cumulation because the firm did not intend to reduce its inventories so quickly.