A Level Economics AQA Practice Exam

What does excess demand indicate?

1. Quantity supplied is more than quantity demanded

2. Demand meets supply at equilibrium

3. Quantity demanded is greater than quantity supplied

4. None of the above

The correct answer is: Quantity demanded is greater than quantity supplied

Excess demand occurs when the quantity demanded for a good or service exceeds the quantity supplied at a certain price level. This situation typically arises when the market price is set below the equilibrium price, leading consumers to wish to purchase more than what is available. In this scenario, suppliers cannot meet the higher demand, resulting in shortages. The effect of excess demand often pushes prices up, as consumers compete to secure the limited goods, eventually leading the market towards a new equilibrium where quantity demanded equals quantity supplied. The other options illustrate different concepts. For instance, when quantity supplied is more than quantity demanded, it indicates a surplus rather than excess demand. When demand meets supply at equilibrium, it reveals a balance rather than a disparity. Hence, recognizing that quantity demanded being greater than quantity supplied correctly characterizes excess demand.