ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Economists call this an “excess demand” – the quantity demanded is greater than the quantity supplied at the given price. This is also called a shortage.

Detailed explanation-2: -At a price above equilibrium, like 1.8 dollars, quantity supplied exceeds the quantity demanded, so there is excess supply. At a price below equilibrium, such as 1.2 dollars, quantity demanded exceeds quantity supplied, so there is excess demand.

Detailed explanation-3: -In fact, at any above-equilibrium price, the quantity supplied exceeds the quantity demanded. We call this an excess supply or a surplus.

Detailed explanation-4: -When quantity demanded is greater than quantity supplied, the resulting shortage causes the price to fall. An increase in demand causes equilibrium price and quantity to rise, other things constant. The law of demand states that the quantity demanded of a good is inversely related to the price of that good.

Detailed explanation-5: -If demand exceeds supply, prices will rise. The law of supply and demand is based on two other economic laws: the law of supply and the law of demand. The law of supply says that when prices rise, companies see more profit potential and increase the supply of goods and services.