What occurs in a market with excess demand?

In a market characterized by excess demand, the quantity demanded for a good or service exceeds the quantity supplied at the current price. This typically occurs when the price of the good is set below the equilibrium level, which is where supply and demand are equal. As a result, consumers are willing to buy more of the product than what is available, leading to a shortage.

Moreover, this imbalance incentivizes producers to increase their prices. When consumers face limited availability of a product they want, they may be willing to pay more, and as prices rise, suppliers are encouraged to produce and offer more of the product to the market. This dynamic of low prices correlating with high demand but insufficient supply exemplifies the fundamental principles of supply and demand in economics.