A shortage occurs when demand exceeds supply – in other words, when the price is too low. However, shortages tend to drive up the price, because consumers compete to purchase the product. As a result, businesses may hold back supply to stimulate demand.

When demand exceeds supply what is it called?

Excess Demand: the quantity demanded is greater than the quantity supplied at the given price. This is also called a shortage.

What happens if demand is greater than supply?

When demand exceeds supply, prices tend to rise. ... If there is an increase in supply for goods and services while demand remains the same, prices tend to fall to a lower equilibrium price and a higher equilibrium quantity of goods and services.