Theme 1.2 - Excess Supply + Demand Flashcards
Define Excess Supply
Supply exceeds demand at a given price
Why does excess supply generally occur?
Producers set prices above equilibrium
Consumers are not willing to buy
How does the market behave when excess supply occurs?
Self corrects
Forces prices down until they reach market value
How does a self-correcting market affect producers?
Punished producers
Forces them to lower prices in order to remain competitive
What is excess demand?
Consumer demand is greater than the producer’s desire to sell
Why does excess demand occur?
Price of a good is set below the market value
How is excess demand alleviated?
Producers raise prices
Consumer interest falls
Where is excess supply found on a supply/demand curve?
Above the point of equilibrium
Where is excess demand found on the supply/demand curve?
Below the point of equilibrium
