Economics: Today and Tomorrow

by Glencoe McGraw-Hill

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What is market equilibrium and market disequilibrium?

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In a free market economy, the price of a good and the amount of it that is sold are set by the forces of supply and demand.  When the price reaches a point where the amount that consumers can and will buy is equal to the amount that producers can and will sell, the market is said to be at equilibrium.  At any other point, the market is in disequilibrium.

Looking at the graph in the link below, you have a line labeled “D” that slants downward.  This is the demand curve.  It shows how much of a product consumers can and will buy at each price.  There is a line labeled “S” that slopes upward.  This is the supply curve.  It shows how much of the product producers can and will sell at each price.

There is one point, at Price A, where the lines intersect.  This is equilibrium.  At that price, everyone is satisfied because all the consumers have been able to buy and all of the producers have been able to sell as much as they wanted to at that price. 

At Price B, the price is too high.  There is a surplus because producers want to sell but buyers do not want to buy.  The opposite is true at Price C.

Thus, equilibrium (as shown at Price A in the graph) occurs when the quantity demanded and supplied are equal.  Disequilibrium occurs at all other prices because either the consumers or the producers cannot buy or sell as much as they would like to.

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