Explain the sequence of change that will take place when there is excess demand of the commodity.

The quantity demanded is more than quantity supplied, a situation of excess demand is said to arise in the market. Excess demand occurs at a price less than the equilibrium price.

This competition would lead to an increase in prices. As the prices increase the law of demand will operate to decrease the demand and the buyers will start vanishing. Conversely, this increase in prices will make the suppliers to increase supply with hopes to earn greater profits.

Such a decrease in demand and increase in supply resulted by an effective increase in prices continues until the equilibrium level is attained. Thus, automatically, the conditions of excess demand are wiped out of the market.