The equilibrium price and quantity in the market is where demand equals supply.
Excess supply:
When the price is above the equilibrium, quantity supplied will be greater than quantity demanded. This means that there is excess supply (or a surplus).
Firms respond by reducing price until D=S and equilibrium is reached.
Excess demand:
When the price is below the equilibrium, quantity demanded would be greater than quantity supplied. This means that there is excess demand (or a shortage).
Firms respond by increasing price until D=S and equilibrium is reached.
