What Happens When Demand Exceeds Supply?

A shortage occurs when demand exceeds supply – in other words, when the price is too low. However, shortages tend to drive up the price, because consumers compete to purchase the product. As a result, businesses may hold back supply to stimulate demand. This enables them to raise the price.

What happens when quantity demanded is greater than quantity supplied?

A shortage occurs when the quantity demanded is greater than the quantity supplied. A surplus occurs when the quantity supplied is greater than the quantity demanded.

What happens to the equilibrium price if demand increases more than supply?

An increase in demand, all other things unchanged, will cause the equilibrium price to rise; quantity supplied will increase. A decrease in demand will cause the equilibrium price to fall; quantity supplied will decrease.