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March 30, 2023 

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MARKET ADJUSTMENT: The economic analysis of the changes in market equilibrium caused by changes in the demand determinants and supply determinants. Given the two curves that comprise the market--the demand curve and the supply curve; each of which can increase or decrease; market adjustment comes in eight varieties. Four involve a shift of EITHER the demand curve OR the supply curve. The other four involve a shift of BOTH the demand curve AND the supply curve.

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EXCESS DEMAND:

A disequilibrium condition in a competitive market in which the quantity demanded is greater than the quantity supplied. Excess demand is another way to say shortage. It also goes by the common term of sellers' market. Excess demand is one of two disequilibrium states of the market. The other is excess supply (or surplus).
Excess demand emerges in a market when the quantity demanded by the buyers exceeds the quantity supplied by the sellers... at a given market price. Buyers are seeking to buy more of the good than sellers are willing to sell, hence there is an "extra" or "excess" amount of demand.

Excess Demand
Excess demand is illustrated using the market for 8-track tapes displayed in this exhibit. This graph was generated with data from the 88th Annual Trackmania 8-Track Tape Collectors Convention at the Shady Valley Exposition Center.

The excess demand for 8-track tapes is indicated as the difference between the quantity demanded and the quantity supplied at a specific market price. In particular, at a 30-cent price, the quantity demanded is 600 tapes and the quantity supplied is 200 tapes. Buyers are willing and able to purchase 400 tapes more than sellers are willing and able to sell. Hence this market has an excess demand of 400 tapes.

The result of this excess demand is an increase in the market price. Because buyers are unable to buy as much of the good as they want, they are inclined to bid up the price. Of course, as the price rises, the quantity supplied increases and the quantity demanded decreases, both acting to reduce the amount of the excess demand. Ultimately the entire excess demand is eliminated and equilibrium is restored.

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Recommended Citation:

EXCESS DEMAND, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2023. [Accessed: March 30, 2023].


Check Out These Related Terms...

     | shortage | sellers' market | excess supply | surplus | buyers' market | market disequilibrium | disequilibrium price |


Or For A Little Background...

     | market | equilibrium | market equilibrium | equilibrium price | equilibrium quantity | law of demand | law of supply | market clearing | voluntary exchange |


And For Further Study...

     | market equilibrium, numerical analysis | market equilibrium, graphical analysis | competitive market | self correction, market | competitive market | invisible hand | free enterprise |


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