Explain how the price mechanism responds to excess supply in a free market

A free market is one where the price of the good or service is determined by the demand from consumers and the supply from producers. When there is excess supply within a market, it means that there is too much of the good or service being produced. This will be corrected by an contraction in supply, along the supply curve, and an extension in demand, along the demand curve. Demand will continue to extend and supply continue to contract until a new equilibrium price and quantity is reached and demand and supply are equal.

EL
Answered by Emily L. Economics tutor

9091 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

The price of tea in the UK increased from £7.20 per kilo to £8.48 per kilo. Over the same period the quantity of tea purchased fell from 97 million kilos to 76 million kilos. Calculate the price elasticity of demand for tea.


Define the term ‘subsidies’ .


What are merit goods and why do they represent an example of market failure?


What is the opportunity cost of a good?


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences