Explain how the price mechanism responds to excess supply in a free market
A free market is one where the price of the good or service is determined by the demand from consumers and the supply from producers. When there is excess supply within a market, it means that there is too much of the good or service being produced. This will be corrected by an contraction in supply, along the supply curve, and an extension in demand, along the demand curve. Demand will continue to extend and supply continue to contract until a new equilibrium price and quantity is reached and demand and supply are equal.
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