Excess demand is defined as the amount by which

Excess demand is defined as the amount by which

• A. Supply exceeds demand
• B. Demand exceeds supply
• C. Equilibrium price is reached
• D. Supply equals demand

Answer: (B)

Excess demand is the shortage that occurs when, at the current price, buyers want to purchase more than sellers are willing to supply. In other words, quantity demanded exceeds quantity supplied. This creates pressure for the price to rise, which tends to reduce demand and increase supply until the market reaches a balance. For example, if at a given price buyers want 100 units but producers are willing to offer only 80, there is an excess demand of 20 units. The other situations described—supply exceeding demand (a surplus), or the price at which demand equals supply (equilibrium)—do not represent excess demand.

Excess demand is the shortage that occurs when, at the current price, buyers want to purchase more than sellers are willing to supply. In other words, quantity demanded exceeds quantity supplied. This creates pressure for the price to rise, which tends to reduce demand and increase supply until the market reaches a balance.

For example, if at a given price buyers want 100 units but producers are willing to offer only 80, there is an excess demand of 20 units. The other situations described—supply exceeding demand (a surplus), or the price at which demand equals supply (equilibrium)—do not represent excess demand.