What is Excess Supply and Excess Demand Introduction Video Lecture - Economics

this diagram is going to look at excess
supply and access demand and how
understanding these concepts help us to
understand how we arrived at the
equilibrium price if you're not sure
about supply demand or equilibrium you
should watch the videos on those topics
the interaction of supply and demand
gives us any equilibrium price of p1 and
the equilibrium quantity of q1 we can
see how we can arrive that if the price
was not equal to p1 for example if it
was p2 because the price is so high
businesses would want to supply more of
this product in this case they would be
willing to supply q2 because the prices
is high consumers won't want to buy that
many they would only want to spot - but
our demand q3 we end up with what we
call an excess of supply this is how
much the supply is greater than the
demand for the product in real life for
a business this looks like too much
stuff on their floor they have q3 q2
products are on on for sale but only Q 3
of them are being sold because
businesses need to sell their product
that will decrease the price if they
decrease their price down to p3
they will still have an excess supply
they'll still have too much stock on the
stock floor and I'll keep on reducing
the price this will continue until they
reach equilibrium at p1
if the price was lower than p1 so now
we're going to make our equal our price
p2 lower than p1 because the price is so
low consumers want to buy more of it the
demand for this product will be at q2
because there isn't much money to be
made out of selling this product
businesses won't want to supply that
many in this case they supply q3 this
now gives us an excess of demand there
is too much demand for this product
consumers are demanding q2 the
businesses are only selling q3 in real
life this looks like a business setup
making q3 products and then selling them
all out they'll see that this pocket
this price of this product is popular
and as a result but will increase the
price this is because the motive of a
business is always to maximise their
profits if they were to increase their
price to p3 there would still be an
excess demand this was still men that
have to met their products being sold
out too quickly and seeing that
opportunity for more profit the business
will increase their price again and this
will continue until they arrive at p1 so
whether the business sets their price
above the equilibrium or below the
equilibrium we can see that the forces
of excess supply and excess demand will
drive the price until it reaches its
equilibrium point