EXCESS SUPPLY

Excess Supply

Excess Supply

Introduction

Demand and supply are considered to be the most fundamental concepts of economics that enables individuals to understand the operations of the market, demand is the quantity that a buyer is willing to purchase at a given price. Quantity demanded has an inverse relationship with price as price increases quantity demanded decreases and as price decreases quantity demanded increases this relationship is known as demand relationship. Supply is the quantity of goods and services that producers are willing to sell in the market at the given prices. Quantity supplied has a direct relationship with price that is if the price increases the quantity supplied will also increase however of the price falls sellers will reduce the supply of the commodity in the market, this relationship is said to be supply relationship. The point at which both demand and supply intersect is the equilibrium point (Taylor. & Weerapana, 2007, Pp.87-90).

The market for any commodity is determined by its demand and supply of the product, the equilibrium price is set where both demand and supply intersect. Price has an inverse relationship with demand and increase in price will lead to a fall in demand and a decrease in price will increase the demand for the product this relationship is shown by the downward sloping demand curve, since buyers want to purchase the commodity at the lowest possible price. Supply has a direct or positive relationship with price, and increase in prices will increase the supply and a fall in prices will lead to a decline in supply as producers wish to get the highest price for their products this relationship is illustrated by an upward sloping supply curve. Price changes will bring a movement along the demand and supply curve; however change in factors other than price will shift the curve (Besanko & Braeutigam, 2010).

There might be situation where the demand of the goods may be higher than its supply or supply exceeds the demand for the product in such situation the market will be in disequilibrium. However in the long-run the demand and supply forces will bring back the market into equilibrium state, it is often difficult in reality to reach the equilibrium point as demand and supply of goods keep on changing resulting in a fluctuation in the prices for goods and services and deviating from the equilibrium point (McEachern, 2011, Pp.114-117).

Discussion

Excess supply over supply refers to the situation where the supply of any product exceeds the demand for that product this may be as a result of lower prices of the goods or services in the market. Seller seeks to sell more goods than it is demanded by the consumers in the market. Excess supply or overs supply results in a disequilibrium state of the market, this arises due to a shortage of demand. This disequilibrium results in a fall in prices for the commodity, since producers are unable to sell as much quantity as they want to therefore they are forced to decrease their ...