What is "Excess Demand" for a good in a market? Explain its chain of effects on the market for that good. Use a schedule.
What is "Excess Demand" for a good in a market? Explain its chain of effects on the market for that good. Use a schedule.
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| Px (in Rs.) | Dx (in Units) | Sx (in Units) |
| 1 | 10 | 2 |
| 2 | 8 | 4 |
| 3 | 6 | 6 |
| 4 | 4 | 8 |
Excess Demand: Excess Demand for a good in a mart occurs when actual price of the good is lower than the equilibrium price.
Suppose market price is Rs.1 per unit then demand in market is for 10 units and supply is for 2 units only. This induces competition, suppose market price is Rs.2 then demand for that commodity is 8 units but supply is for 4 units. The same reaction will prevail in the market. However, supply increases from 2 to 4 units.
These changes stop at Rs.3 when market price is equal to equilibrium price and demand is equal to supply = 6 units.
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