Question

When is there an excess demand in a market for a product?

1) When the quantity demanded exceeds the quantity supplied
2) When the quantity supplied exceeds the quantity demanded
3) When the price of the product is too high
4) When the price of the product is too low

Answer 1

Excess demand in a market occurs when the quantity demanded is greater than the quantity supplied, usually because the product's price is below the equilibrium level.

Step-by-step explanation:

There is an excess demand in a market for a product when the quantity demanded exceeds the quantity supplied. This typically occurs when the price of the product is below the equilibrium level, which is the price at which the quantity demanded is equal to the quantity supplied. At a price below equilibrium, consumers want to buy more of the product than producers are willing to supply, leading to a shortage. As a response to excess demand, prices tend to rise until the equilibrium is reached where supply matches demand.