Economics Consumer Surplus And Producer Surplus Questions
Market disequilibrium refers to a situation in which the quantity demanded and the quantity supplied in a market are not equal, leading to an imbalance between buyers and sellers. In this situation, there is either excess demand (shortage) or excess supply (surplus) in the market.
When there is excess demand, the quantity demanded by buyers exceeds the quantity supplied by sellers at the prevailing market price. This can occur due to factors such as increased consumer preferences, a decrease in production, or government interventions like price ceilings. As a result, buyers may have to compete for limited goods or services, leading to higher prices and potential market inefficiencies.
On the other hand, excess supply occurs when the quantity supplied by sellers exceeds the quantity demanded by buyers at the prevailing market price. This can happen due to factors such as decreased consumer demand, increased production, or government interventions like price floors. In this case, sellers may struggle to sell their goods or services, leading to lower prices and potential market inefficiencies.
Market disequilibrium is a temporary state as markets tend to adjust towards equilibrium over time. Prices and quantities will adjust until the quantity demanded equals the quantity supplied, restoring balance in the market.