Utilizing The Concept of Excess Supply
Excess supply in a perfect competition market is the “extra” amount of supply, distinguishing from quantity demanded. The market for televisions demonstrates the establishment a “surplus". Suppose the price of a television is $600, the quantity supplied is 1000, and the quantity demanded is 300 televisions. This illustrates that sellers are seeking to sell 700 more televisions than buyers willingness to purchase the product. Hence, an excess supply of 700 televisions would move the market into a state of disequilibrium. In this situation, producers would not be able to sell a television at the price of $600. This will induce them to reduce their price of the television in order to make the product more affordable for the buyers. In response to the reduction in price of the product, consumers will increase their quantity demanded. The market will eventually become balanced as the market is transitioning to an equilibrium price and quantity. A market that is in an equilibrium state enables firms to stay competitive in that market.
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