# Excess demand and supplyWatch

#1
I have a scenario about 'the market for IPads if samsung inroduce a cheaper tablet' I understand the question completley and drawn the graph and the shift in demand. However, it then says label the excess demand or supply and i've shown the excess demand but I dont understand how its excess demand when the demand on the from the consumers is lower. I may have messed up my equilibrium or something.
0
2 years ago
#2
You haven't done anything wrong. My guess is that the question assumes that the price for Ipads stays the same after Samsung releases their new tablet.

This means that the demand curve shifts left (as you did correctly) but there is a fixed price level. This creates excess supply.
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#3
Thank you very much!!

(Original post by BasicMistake)
You haven't done anything wrong. My guess is that the question assumes that the price for Ipads stays the same after Samsung releases their new tablet.

This means that the demand curve shifts left (as you did correctly) but there is a fixed price level. This creates excess supply.
0
2 years ago
#4
(Original post by miaofcourse)
I have a scenario about 'the market for IPads if samsung inroduce a cheaper tablet' I understand the question completley and drawn the graph and the shift in demand. However, it then says label the excess demand or supply and i've shown the excess demand but I dont understand how its excess demand when the demand on the from the consumers is lower. I may have messed up my equilibrium or something.
Diagram:

Your diagram is fine, but notice the fact that your question said "excess demand OR excess supply" and, in this case, it is excess supply. On my diagram, at Q0, quantity demanded (Qd) and quantity supplied (Qs) are both the same. Initially, after the shift (before price has changed from P0), quantity supplied has stayed the same at Q0, but Qd has fallen to Qd2, and so there is an excess of supply of size Q0 - Qd2. As firms are struggling to sell their excess stocks, the most efficient, most cost effective ones will drop their prices until all of the inefficient, uncompetitive ones have left the market, resulting in quantity demanded = quantity supplied (which occurs at a price of P2, and a quantity of Q2). The diagram below shows you another way of showing excess supply on your diagram:
http://unisa.lightswitched.com/assets/642.svg

Hope that helps
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