Excess Supply and Excess Demand
Equilibrium is determined at a point where quantity demanded is equal to quantity supplied.At equilibrium price there is zero excess demand and Zero excess Supply.Excess Supply-: When market price is more than the equilibrium price quantity supplied is more than quantity demanded.This situation is refered as Excess supply. Excess Demand-: When market price is less than the equilibrium price quantity demanded is more than quantity supplied.This situation is refered as Excess demand.
Excess Supply to Equilibrium
In case of Excess Supply Quantity demanded is less than Quantity supplied.Market price is greater than equilibrium price.This will lead to competition among sellers.Which force the price to go down .The price will continue to fall till situation of Zero Excess supply sets in.Now equilibrium price will prevail.
Excess Demand to Equilibrium
In case of Excess demand Quantity demanded is more than Quantity supplied.Market price is lower than equilibrium price.This will lead to competition among buyers.Which force the price to go up .The price will continue to rise till situation of Zero Excess demand sets in.Now equilibrium price will prevail.
Equilibrium is determined at a point where quantity demanded is equal to quantity supplied.At equilibrium price there is zero excess demand and Zero excess Supply.Excess Supply-: When market price is more than the equilibrium price quantity supplied is more than quantity demanded.This situation is refered as Excess supply. Excess Demand-: When market price is less than the equilibrium price quantity demanded is more than quantity supplied.This situation is refered as Excess demand.
Excess Supply to Equilibrium
In case of Excess Supply Quantity demanded is less than Quantity supplied.Market price is greater than equilibrium price.This will lead to competition among sellers.Which force the price to go down .The price will continue to fall till situation of Zero Excess supply sets in.Now equilibrium price will prevail.
Excess Demand to Equilibrium
In case of Excess demand Quantity demanded is more than Quantity supplied.Market price is lower than equilibrium price.This will lead to competition among buyers.Which force the price to go up .The price will continue to rise till situation of Zero Excess demand sets in.Now equilibrium price will prevail.
