- Download PDF
2 Answers | Add Yours
In economic theory, the price system will always bring about an equilibrium if it is left to function without interference. That is, the forces of supply and demand will cause prices to move and adjust until equilibrium is reached. However, this does not happen right away. There can be prices that are set that do not bring equilibrium.
In this context, “equilibrium” means a situation in which the quantity demanded and supplied are equal. There are no sellers who would like to sell more of a product at that price but are unable to do so because no one wants to buy. There are no buyers who would like to buy more at that price but cannot because no one wants to sell. The price that brings about this situation is the equilibrium price. It is the perfect price for that product at that time and place.
However, there can be disequilibrium prices. These are prices that are too high or too low for a given product, time, or place. If the disequilibrium price is set too high, sellers will want to supply more products than consumers will want to buy. This leads to a surplus. On the other hand, if the price is set too low, consumers will want to buy more than suppliers want to sell. The result in this case is a shortage. In both cases, there is disequilibrium because either the buyers or the sellers are dissatisfied.
For a graphic demonstration of this concept, please follow this link.
The equilibrium price is the cost of obtaining a product where the product supplied equals the amount demanded. The disequilibrium price is a cost of obtaining a product that creates unbalance in the market by not making the amount of the product needed and the amount of the product supplied.
We’ve answered 324,109 questions. We can answer yours, too.Ask a question