Equilibrium And Disequilibrium
Economics notes
Equilibrium And Disequilibrium
➡️ Injections refer to the addition of money into the circular flow of income, such as government spending, investment, and exports. Leakages refer to the removal of money from the circular flow of income, such as taxes, savings, and imports.
➡️ Injections and leakages are important components of the circular flow of income model, which is used to analyze the macroeconomic environment. Injections increase the total amount of money in the economy, while leakages reduce the total amount of money in the economy.
➡️ Injections and leakages can have a significant impact on the overall level of economic activity. Increases in injections can lead to increased economic growth, while increases in leakages can lead to decreased economic growth.
What is the difference between equilibrium and disequilibrium in economics?
Equilibrium refers to a state of balance in the market where the demand for a product or service is equal to its supply. In other words, the quantity demanded and the quantity supplied are equal at a certain price level. On the other hand, disequilibrium occurs when the market is not in balance, and there is either a shortage or surplus of goods or services. This can happen when the price is too high or too low, causing either excess demand or excess supply.
How does the market reach equilibrium?
The market reaches equilibrium through the interaction of supply and demand. When the price of a product or service is too high, the quantity supplied exceeds the quantity demanded, resulting in a surplus. This surplus puts pressure on the price to decrease until it reaches a level where the quantity demanded equals the quantity supplied. Conversely, when the price is too low, the quantity demanded exceeds the quantity supplied, resulting in a shortage. This shortage puts pressure on the price to increase until it reaches a level where the quantity demanded equals the quantity supplied.
What are the consequences of disequilibrium in the market?
Disequilibrium in the market can have several consequences. When there is a shortage, consumers may have to pay higher prices, and some may not be able to purchase the product or service at all. This can lead to a decrease in consumer welfare. On the other hand, when there is a surplus, producers may have to lower their prices, resulting in lower profits. This can lead to a decrease in producer welfare. Additionally, disequilibrium can lead to inefficiencies in the market, such as wasted resources and lost opportunities for trade.