Excess supply is when the market quantity supplied of a good by producers is higher than that of which is demanded by consumers, this occurs as a result a good's current price exceeding that of the market equilibrium.
Excess demand is when the market quantity demanded of a good by consumers is higher than that of which is supplied by producers, this occurs when a good's current price is below that of the market equilibrium.
If the market for a particular good can be represented by the supply and demand functions,
Qs = C + Dp and Qd = A – Bp
(see perfect competition, linear equilibrium for more information),
and you know what the current price the good is being sold for in the market, it is possible to calculate and determine whether there is an excess quantity being supplied by producers or demanded by consumers.
For example if the market for bluetooth speakers is represented by the supply and demand functions,
Qs = 30000 + 100p and Qd = 370000 - 875p
and the current price for a bluetooth speaker is $285, then the following would be inputted into the above calculator
A | 370000 |
B | 875 |
C | 30000 |
D | 100 |
Current Price | 285 |
Using the above equation and inputs we find that when the market price for bluetooth speakers is $285, there is excess demand by consumers in the market of 62125 units. What this means is that because the price of the good is lower than that of the market equilibrium, more of the good is demanded by consumers than that of which is produced by suppliers.
This will eventually drive the price up to the market equilibrium due to their being a shortage of speakers, relative to the demand by consumers, and competition among consumers to acquire them.
References
Perloff, Jeffrey. Microeconomics. Boston, MA: Pearson Education, 2011. Print.