2.7 — Market Disequilibrium and Changes in Equilibrium

Market disequilibrium occurs when quantity demanded does not equal quantity supplied, causing a surplus or shortage. For more on equilibrium concepts, refer to AP Macroeconomics Market Disequilibrium

Here is a quick summary:

1. Surplus:
   • Price is above equilibrium, so quantity supplied > quantity demanded.
   • For example, unsold inventory due to high prices.
2. Shortage:
   • Price is below equilibrium, so quantity demanded > quantity supplied.
   • For example, underpriced concert tickets leading to unmet demand.
3. Price Adjustments:
   • Surpluses drive prices down, while shortages drive prices up, restoring equilibrium.

Changes in Equilibrium

Equilibrium shifts when supply or demand changes.

1. Demand Shifts:
   • Increase in Demand: Higher price and quantity (e.g., new trends boost electric car sales).
   • Decrease in Demand: Lower price and quantity (e.g., health scares reduce demand for specific foods).
2. Supply Shifts:
   • Increase in Supply: Lower price, higher quantity (e.g., improved production technology).
   • Decrease in Supply: Higher price, lower quantity (e.g., natural disasters disrupt supply).
3. Simultaneous Shifts:
   • The new equilibrium depends on the relative size of demand and supply shifts:
     • If demand increases more than supply, price and quantity rise.
     • If supply increases more than demand, price falls, and quantity rises.