Market disequilibrium | Excess Supply | excess demand

Market disequilibrium | Excess Supply | Excess demand

Market is not in equilibrium, because there is either excess supply and excess demand in the market.

In the above curve shows the market Disequilibrium situation when excess supply exists in the market because of price increase.E is the equilibrium situation where quantity supply and demand are Equal.Equlibrium price Pe and equilibrium quantity Qe.When price increase from  Pe to P1 , quantity supplied also increases from Qe to Qs . Because, price and quantity supply are positively related.When price increase in the market,producer want to earn more profit by selling their products.In this time, create excess supply in the market.This is the surplus in the market.

In the above figure shows that excess demand in the market.This is the shortage in the market.We know that price and quantity demanded are negatively related.When price decrease quantity demanded also increases.In the above figure,when price decrease from Qe to Q1 , quantity demanded also increases from Qe to Qd.At this time create excess demand in the market.Because when price will decrease, consumer wants to purchase more products.