EXCESS SUPPLY (SURPLUS)

At any price above the equilibrium price, say, R6, there will be excess supply (surplus).

Market Equilibrium

What is the quantity demanded at R6?

1 200 1 800 2 400 3 000 3 600 4 200 4 800

It is 1 800

What is the quantity supplied at R6?

1 200 1 800 2 400 3 000 3 600 4 200 4 800

It is 4 200

Is there an excess demand or excess supply?

Excess supply Excess demand no change to quantity demanded at each price.

There is an excess supply.

Thus, at R6, the quantity supplied is 4 200 pieces, but the quantity demanded is 1 800. The excess supply is therefore 4 200 – 1 800 = 2 400.

Because there is excess supply, or surplus, suppliers will start to lower their prices to get rid of their unsold stock.

Watch the following video clip for a graphical representation of an Excess Supply (surplus):

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