Question

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What are inventories? And their relationships with investment?
I need an explanation, not links...thanks!

Answer 1

Inventories are the raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale. Inventory represents one of the most important assets that most businesses possess, because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company's shareholders/owners.


Inventory investment is a component of gross domestic product (GDP). What is produced in a certain country is naturally also sold eventually, but some of the goods produced in a given year may be sold in a later year rather than in the year they were produced. Conversely, some of the goods sold in a given year might have been produced in an earlier year. The difference between goods produced (production) and goods sold (sales) in a given year is called inventory investment. The term can be applied to the economy as a whole or to an individual firm.


Inventory investment = production - sales
Thus, if production per unit time exceeds sales per unit time, then inventory investment per unit time is positive; as a result, at the end of that period of time the stock of inventories on hand will be greater than it was at the beginning. The reverse is true if production is less than sales.

Hope this helps :)

Answer 2

btw, these basics 2AB is explained briefly in he first chap of the econ 3AB book

Answer 3

yup i agree with RANE.