The correct option is Excess Supply.
Explanation
In a perfectly competitive market, the equilibrium price is the price point at which the quantity of goods demanded by consumers equals the quantity supplied by producers. Any price deviation from this equilibrium results in market disequilibrium.Analysis of Price Mechanism:
When the prevailing market price is above the equilibrium price, the following occurs:
- Effect on Supply: According to the Law of Supply, producers are incentivized to produce more goods to maximize profits at the higher price. Consequently, the quantity supplied increases.
- Effect on Demand: According to the Law of Demand, consumers are less willing to purchase the good at a higher price. Consequently, the quantity demanded decreases.
- Result: The quantity supplied exceeds the quantity demanded ($Q_s > Q_d$). This situation creates a surplus of goods in the market, technically referred to as Excess Supply.
Key Takeaway:
Excess Supply (Surplus) occurs when the market price is higher than the equilibrium price. Conversely, Excess Demand (Shortage) occurs when the market price is lower than the equilibrium price.