Here we have a scenario where the Quantity being produced is greater than the Equilibrium Quantity.
This might have happened because the Consumer Demand fell, shifting the Demand Curve lower.
Perhaps Dunkin Donut moved into Cookstown, and dropped their prices for a cup of coffee.
It might also have happened because the Supply Curve shifted upward because of an increase in the price of Coffee imported from Brazil.
It does not matter whether the Demand Curve changed, or the Supply Curve changed, of whether both changed.
It does not matter what the causes of those changes were.
All that matters is that at the currently produced quantity of Q1, there is not enough Consumer Demand at the price (P1) that the Suppliers want to charge.
At that Q1 level of production, the Suppliers would have to charge the consumers P2 to generate sufficient demand.
But P2 is below the cost of production – Suppliers would lose money at that price.
So what happens is that the Suppliers have an incentive to reduce the Quantity of Goods or Services they offer for sale.
Like the price of Cabbage Patch dolls at Christmas, a reduction in the supply available winnows out the Consumers not willing to pay the higher price.
Until the Quantity is back at the Equilibrium Point.
