If it's for yourself, you might pin the seams and try it on to see if a bigger sweater would be ok. Otherwise, yes, stitching down the side and cutting off the extra fabric will work *this is like making a steek). You'll lose some stretchiness but it should still be ok.
As for finishing the sweater, I'd add on the collar in the same yarn. You might see if shorter, three-quarter sleeves will work with the sweater. If you decide to cut off the extra fabric, the sleeves should be adjusted so that they're smaller too and perhaps you'll have enough yarn for them without going to another color.
It's a lovely looking sweater and beautifully knit.