It can be seen in the above figure that at the price level of 0P1, the quantity supplied (0Q1) is being exceeded by the quantity demanded (0Q2). For the limited quantity of goods which are available in the market there arises a competition amongst the buyers; this means that there would be bidding up of the prices by the consumers. There is a contraction in demand and an expansion in supply due to the rise in the prices; this also means that towards the equilibrium point there is a movement along the curves (Burfisher, 2011). As long as there is excess demand this will continue to occur. Over a period a time, there comes a situation where the intersections of the demand and supply curves occur. It is at this point that where the quantity demanded by the consumers is exactly equal to the quantity supplied at the 0Qe level and the price level is 0Pe.
Hence, there arises a situation which is known as glut or excess supply in the market. Seller would offer to sell at a lower price in order to remove excess supply. There is an expansion of demand because of fall in price and leading to contraction in supply which is also the movement alongside the curves near the optimal point. As long as there is excess supply in the market, this would continue to occur till we are at the point where supply and demand curve intersects. This is at 0Pe price level where the quantity demanded and supply is equal and market clears itself.