What is excess demand/ excess supply? I've been reading up on Walras' Law and thought I understood it pretty well. However one of my friends asked me point blank what is an example of excess demand or excess supply is and I had some difficulty answering and realized I had no clue.

What are examples of excess demand and excess supply?
Definition 1. Excess supply is supply minus demand.

Definition 2. Excess demand is demand minus supply.



Example 1. A baker posts a sale price of \$2 per loaf of bread.

At this price, he is willing to sell up to 300 loaves of bread (per day), but consumers are willing to buy only 200.

We say that quantity supplied and quantity demanded (at the price of \$2) are 300 and 200 and write $$S(\$2) = 300\text{ and }D(\$2) = 200.$$

Excess supply is then $$ES(\$2) = S(\$2) − D(\$2) = 300 - 200 = 100.$$ (If we'd like, we can also say that excess demand is −100.)



Example 2. A baker posts a sale price of \$1 per loaf of bread.

At this price, he is willing to sell up to 100 loaves of bread (per day), while consumers are willing to buy 250.

We say that quantity supplied and quantity demanded (at the price of \$1) are 100 and 250 and write $$S(\$1) = 100\text{ and }D(\$1) = 250.$$

Excess demand is then $$ED(\$1) = D(\$1) − S(\$1) = 250 - 100 = 150.$$ (If we'd like, we can also say that excess supply is −150.)



In the real world, the baker may not know precisely how many loaves of bread he's willing to sell at each and every price. Nonetheless, if it is the case that QS obviously greatly exceeds QD (or vice versa), he will either notice this and respond accordingly or go out of business.