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Market Disequilibrium

Economics notes

Market Disequilibrium

➡️ Market disequilibrium occurs when the market price of a good or service does not match the equilibrium price, which is the price at which the quantity of goods supplied is equal to the quantity of goods demanded.

➡️ Disequilibrium can be caused by a variety of factors, such as changes in consumer preferences, changes in the cost of production, or changes in government policies.

➡️ In order to restore equilibrium, the market must adjust either the price or the quantity of the good or service being traded. This adjustment can be achieved through changes in the supply or demand of the good or service, or through government intervention.

What is market disequilibrium and how does it occur?

Market disequilibrium refers to a situation where the quantity demanded and the quantity supplied in a market are not equal, leading to a shortage or surplus of goods or services. This can occur due to various factors such as changes in consumer preferences, shifts in supply or demand curves, government interventions, or natural disasters.

What are the consequences of market disequilibrium?

The consequences of market disequilibrium depend on whether there is a shortage or surplus of goods or services. In the case of a shortage, prices tend to rise as consumers compete for the limited supply, leading to higher costs for consumers and potential rationing of goods. In the case of a surplus, prices tend to fall as suppliers try to sell off excess inventory, leading to lower profits for producers and potential waste of resources.

How can market disequilibrium be corrected?

Market disequilibrium can be corrected through various mechanisms such as price adjustments, changes in production or consumption patterns, government interventions, or market incentives. For example, if there is a shortage of a particular good, prices may rise, which can incentivize producers to increase supply and consumers to reduce demand. Alternatively, the government may intervene by implementing price controls, subsidies, or taxes to influence supply and demand. Ultimately, the correction of market disequilibrium depends on the specific circumstances of the market and the effectiveness of the chosen corrective measures.

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