Excess Demand
Bigger! More is better!
It’s the Capitalist way, right?
Excess demand happens when we want more, but there’s not enough supply to go around. When supply meets demand, it means that the amount of stuff that’s produced is the same amount of stuff that’s bought. Excess demand, on the other hand, is a wild beast.
You can look at excess demand two ways. First, you could say firms aren’t supplying enough of their stuff. The people want more, so they should make more, before there are riots in the store. The other way you could look at it is not from the quantity perspective, but from the price perspective. If the firm raised the price of the good enough, that excess demand would disappear. Some people will stop demanding the good once it becomes too high of a price for them to justify.
And justify they will.
Related or Semi-related Video
Econ: What is Positive Demand Shock?0 Views
And finance Allah shmoop What is positive Demand Shock Well
we think of shocks is bad things you know electrocutions
earthquake serial killers in our basement Shocking So what is
a positive shock Think about Frankenstein's monster Yeah the monsters
All dead flash sewn together Then he's struck by lightning
Suddenly he's up and you know stumbling around He's alive
Good old Frankie Mo Well he gets to be alive
That's a positive for him at least but it's still
disruptive Now we've got a seven foot tall green guy
bumbling around knocking stuff over scaring villagers and possibly throwing
kids in tow Lakes A positive demand Shocking economics works
in a similar way The shock that is aggregate demand
suddenly spikes Usually it means something happened to put a
lot more money into a market than was there before
Well on the small scale than a man shot can
be positive Like if you're a company selling a product
that suddenly sees a spike in demand shock there Yeah
that's a good problem to have It's good for business
that people want your stuff Okay Positive demand shock on
the individual or corporate level How about that I think
your bottled water when a hurricane is coming or that
new brand of sunglasses after a Kardashian wears them in
an instagram post or earplugs when the shmoop singers come
to town these things boost demand suddenly enough to skew
the market And while there can be negative shocks as
well like this is where demand suddenly plummets You've got
a popular vitamin like people buy them by the caseload
Mina report comes out showing that taking the vitamin everyday
for a period of time will cause a person to
grow scales and become a swamp monster Hug Sales plummet
Negative demand shock There are two basic ways a market
can react to these shocks Remember your basic economic training
and everything is supply and demand Well prices are a
way to keep these forces in balance If demand suddenly
skyrockets Well at least one of two things are gonna
happen and maybe both Well one prices are going to
skyrocket or two supplies they're going quickly run out Those
are shocks on a corporate level relatively small scale Well
there were also shocked at the level of the whole
economy Shocks involving aggregate demand Well it's Christmas time people
the economy has been sluggish so Congress decides to do
something about it They issue a stimulus bill Everyone in
the U S gets a check for a thousand bucks
from the government Thank you very much A sudden spike
in aggregate demand Well now there are a couple hundred
billion more dollars to be spent on Christmas presents The
hot toy this year Yes the arty doll As of
October it's retail Bryce was twenty five bucks each Stores
have plenty of them in stock supply and demand are
in balance But now the government stimulus hits bam Aggregate
demand spikes Prices for everything rise suddenly lots more cash
floating around chasing the same goods and just because the
government sent everyone a check While that doesn't mean the
toy company can make anymore Artie's inventories run out Well
secondary market for the toys opened up including sky high
prices Now you have to pay two hundred fifty dollars
three hundred four hundred five hundred dollars on eBay to
get the doll by Christmas Eve That's a positive aggregate
demand shock like Frankenstein's monster causing havoc wherever it goes
But don't worry the monster doesn't last long The aggregate
demand shock positive or negative can cause short term havoc
But in the long term the market works itself out
In the case of a positive aggregate demand shock while
overtime companies find a way to produce more of the
item to meet the new level of demand right these
by another factory or something like that or work overtime
or prices will just have to stay higher so that
aggregates supply an aggregate demand stay balanced Either way the
market eventually reaches equilibrium again and conditions adjust And well
in the long term everything gets back to normal well
as normal as they can be with a seven foot 00:03:48.49 --> [endTime] tall monster on the loose
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