Why excess demand and excess supply lead to changes in price
When buyers want more than sellers offer, price rises. When sellers offer more than buyers want, price falls. These pressures push the market back toward balance.
Real World
When the PS5 launched in November 2020, Sony set the price at £449 but demand far exceeded supply — consoles sold out within minutes and scalpers resold them for over £800, illustrating how excess demand drives prices up.
Exam Focus
Always state the direction of price change AND explain the mechanism linking excess demand/supply to that change for full marks.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
How well did you know this?