Short Answer 
Excess Demand occurs when demand for a product exceeds its supply, leading to rapid price increases and stock shortages. Conversely, Excess Supply happens when supply surpasses demand, resulting in declining prices and overstocked inventories. Real-world examples illustrate these situations, such as limited edition items or oversupplied dealerships.
Understanding Excess Demand
The term Excess Demand refers to a situation in a market where the demand for a product significantly exceeds its supply. This often occurs when a product is in high demand due to various factors, such as popularity or low availability. Key indicators of excess demand include:
- Rapid price increases as consumers compete for limited stock
- Consumers showing a strong willingness to purchase even at elevated prices
- Store owners unable to keep up with the product demand
Exploring Excess Supply
Excess Supply is the opposite scenario where the supply of a product surpasses the demand for it. This can happen when too many goods are available and not enough consumers are willing to buy them, leading to a surplus. Important characteristics of excess supply include:
- Declining prices as sellers attempt to attract buyers
- Overstocked inventories at retailers or manufacturers
- Consumers’ reluctance to purchase due to higher prices or alternatives available
Real-World Examples
To put these concepts into perspective, consider the following scenarios for each situation: Firstly, an example of Excess Demand could be when the price of a limited edition item drops significantly, leaving store owners unable to restock quickly. Secondly, an instance of Excess Supply is when dealerships have an oversupply of trucks due to falling demand, leaving many units unsold on their lots. Lastly, another example of Excess Supply would be seen when the price for a trending holiday toy increases to a point where shoppers stop buying them altogether.