<P> Prices and the occurrence of excess supply illustrate a strong correlation . When the price of a good is set too high, the quantity of the product demanded will be diminished while the quantity supplied will be enhanced, so there is more quantity supplied than quantity demanded . The occurrence of excess supply either leads to the lowering of the price or unsold supply, the latter reflecting excess supply . Lowering the price of a good encourages consumers to purchase more and suppliers to produce less . </P> <P> A disequilibrium occurs due to a non-equilibrium price giving a lack of balance between supply and demand . Excess supply is one of the two types of disequilibrium in a perfectly competitive market, excess demand being the other . When quantity supplied is greater than quantity demanded, the equilibrium level does not obtain and instead the market is in disequilibrium . An excess supply prevents the economy from operating efficiently . </P> <P> Excess supply in a perfectly competitive market is the "extra" amount of supply, beyond the quantity demanded . As an example, suppose the price of a television is $600, the quantity supplied at that price is 1000 televisions, and the quantity demanded is 300 televisions . This illustrates that sellers are seeking to sell 700 more televisions than buyers are willing to purchase . Hence, an excess supply of 700 televisions exists, indicating that the market is in a state of disequilibrium . In this situation, producers would not be able to sell all the televisions they produce at the desired price of $600 . This will induce them to reduce their price in order to make the product more attractive for the buyers . In response to the reduction in the price of the product, consumers will increase their quantity demanded and producers will not produce as many as before . The market will eventually become balanced as the market is transitioning to an equilibrium price and quantity . </P> <P> Excess supply in one market can affect supply or demand in another market . For example, when there is excess supply in the labor market--that is, unemployment--consumer - laborers will be constrained in their disposable income and hence will demand a smaller quantity of goods at any given price . This diminished goods demand resulting from a constraint in another market is known as the effective demand for goods . </P>

What happens when there is a surplus in a market
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