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Explain the meaning of excess demand and excess supply with the help of a schedule. Explain their effect on equilibrium price

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Explain the meaning of excess demand and excess supply with the help of a schedule. Explain their effect on equilibrium price. - CBSE Economics class 12 2017

Appeared in CBSE economics class 12, 2017, All India, Set 1 paper



Asked by:Aparna-Dasgupta

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Excess demand refers to a situation when quantity demanded is more than quantity supplied at the prevailing market price. 



Here both buyers and sellers are negotiating to buy and sell toys. Both have different prices to offer. Buyers will like to pay as low as possible and sellers will like to charge as high as possible. But market equilibrium will be determined only when both agree to a common price and a common quantity at that price. When increase in price from Rs 2 to Rs 4, market demand falls from 100 to 80 toys and market supply rises from 20 to 40 toys. 

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CBSE-Economics-Class-12-2017-->View question

Explain the meaning of excess demand and excess supply with the help of a schedule. Explain their effect on equilibrium price. - CBSE Economics class 12 2017

Appeared in CBSE economics class 12, 2017, All India, Set 1 paper



Asked by:Aparna-Dasgupta

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Answers

Excess demand refers to a situation when quantity demanded is more than quantity supplied at the prevailing market price. 



Here both buyers and sellers are negotiating to buy and sell toys. Both have different prices to offer. Buyers will like to pay as low as possible and sellers will like to charge as high as possible. But market equilibrium will be determined only when both agree to a common price and a common quantity at that price. When increase in price from Rs 2 to Rs 4, market demand falls from 100 to 80 toys and market supply rises from 20 to 40 toys. 

 

When the price is lower than the equilibrium market price of a good (OPe), the price ceiling leads to excess of demand. Now, the excess demand will increase the competition among consumers in the market. Thereby they consume the good at a higher price which leads to an increase in the price level, i.e. OPe. 

Excess supply refers to a situation when the quantity supplied is more than teh quantity demanded at the prevailing price.