Question

explain the effect of excess supply of good on its equilibrium price.​

Answer 1

Answer:

Now let us suppose that market supply increases (say, due to a fall in the input prices). This shifts the supply curve parallelly rightwards to S2S2 from S1S1. Holding demand unchanged, at the initial price OP1, there exist excess supply equivalent to (Oq1-Oq2) units of output. This excess supply will increase competition among the producers and consequently, they would be willing to sell their output at a lower price. The price will continue to fall until it reaches OP2, where the new supply curve S2S2, intersects the initial demand D1D1. The new equilibrlum is established at point E2, where the equilibrium output is Oq2, and the equiliblium price is OP2. Thus, at the new' equilibrium, the equilibrium quantity has risen whereas, the equilibrium price has fallen.  

To summarise,  

Excess supply at the existing price => Competition among the producers => Fall in the price level => New equilibrium => Fail in equilibrium price.

Answer 2

Answer:

This excess supply will increase competition among the producers and consequently, they would be willing to sell their output at a lower price. ... Excess supply at the existing price => Competition among the producers => Fall in the price level => New equilibrium => Fail in equilibrium price.