What are inventories in economic terms?

In economic terms, inventories refer to goods that are produced but not yet sold. This includes finished products that are ready to be sold and raw materials or work-in-progress items that firms have on hand for current or future production. The primary role of inventories is to manage the production and sales process. Companies need to maintain adequate inventories to meet customer demand without experiencing stockouts, which can lead to lost sales and dissatisfied customers.

The choice that describes inventories as "sales of goods that exceed production" does not accurately represent what inventories are since inventories would not be created when sales exceed production. Similarly, the reference to "items that are exported overseas" and "additions of unsold goods to company inventories" does not align with the basic definition of inventories, which specifically focuses on goods that have been produced but remain unsold. Understanding that inventories consist of goods held by a company that are produced but not yet sold helps clarify the fundamental aspects of inventory management in economics.