Question

What is meant by excess demand?

Hint:

Excess demand usually leads to an upward pressure on prices, as buyers compete for the limited goods, eventually pushing the market back toward equilibrium.

Answer 1

Step 1: Understanding the Concept:
Market equilibrium occurs where Market Demand equals Market Supply. Excess demand happens when this balance is disrupted at a specific price level.
Step 2: Technical Definition:
Excess demand (also known as a shortage) occurs in a market when the quantity demanded of a good or service exceeds the quantity supplied at the prevailing market price.
Step 3: Visualizing the Condition:
This situation typically occurs when the market price is below the equilibrium price. Sellers are not willing to supply much at a low price, but consumers want to buy more.
Step 4: Final Answer:
Excess demand is a situation where Quantity Demanded ($Q_d$)>Quantity Supplied ($Q_s$) at a given price.