what is surplus demand
Surplus demand, also known as excess demand, refers to a situation in which the quantity of a good or service demanded by buyers exceeds the quantity supplied by sellers. In other words, there is more demand for a product than there is supply available in the market.
To understand surplus demand, let's consider an example of a popular toy during the holiday season. Suppose that a manufacturing company produces 1,000 units of the toy, but there is a demand of 2,000 units from consumers. In this case, there is a surplus demand of 1,000 units (2,000 units demanded - 1,000 units supplied).
To determine the surplus demand for a product, you need to compare the quantity demanded with the quantity supplied. This can be done by collecting data on the number of units buyers are willing and able to purchase at a given price, as well as the number of units suppliers are willing and able to produce at the same price.
Market equilibrium occurs when the quantity demanded equals the quantity supplied, resulting in no surplus or shortage. However, if the quantity demanded exceeds the quantity supplied at a given price, surplus demand arises.
It is essential to note that surplus demand can have an impact on the market dynamics. It may lead to various outcomes, such as price increases as sellers try to capitalize on the excess demand or shortages if the surplus demand persists for an extended period without adequate supply adjustments.