Excess Demand or Shortage

A situation where the price is below the equilibrium price, resulting in the quantity demanded being greater than the quantity supplied.

Excess Demand Graph

As shown in the graph, when the price is 40, the quantity demanded is 400, but the quantity supplied is 200, leading to a shortage in the market for this good. Although there are many consumers willing to buy the product, there are very few available for sale compared to the demand. The shortage in the market is the difference between the quantity demanded and the quantity supplied, in this case, 400 - 200, resulting in a shortage of 200 units.

In such cases, sellers often resort to alternative methods to allocate the available units. They may form queues in stores and sell on a first-come, first-served basis, limit the quantity sold to each customer, or prioritize sales to known customers, friends, or family. Because there is a depletion of stock in the market, consumers cannot obtain all they want even if they are willing to pay, as there is not enough product availability.