Th1.2: Excess Supply

Question 1

When is there excess supply?

Answer 1

if the price is set higher than the equilibrium

Question 2

Refer to PP

Look at Graph 13. Why is there excess supply at P2?

Answer 2

suppliers are willing to supply QS but consumers only demand QD

Question 3

If firms have unsold goods, as seen in Graph 13, what will they do?

Answer 3

put on sales to sell excess goods, causing prices to fall and supply to contract