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April 21, 2024 

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REAL PURCHASING POWER: The ability to acquire wants-and-needs satisfying goods and services with income or money. The real purchasing power of income or money depends on the prices of the goods and services. If the price level, for example, doubles, then a given amount of money can purchase half as many goods and services.

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DISEQUILIBRIUM PRICE:

A price that does not achieve equilibrium in the market. A disequilibrium price is either above or below the equilibrium price. A price below the equilibrium price creates a shortage and a price above the equilibrium price creates a surplus. In both case, the market imbalance prompts the price to change, moving toward the equilibrium price.
A disequilibrium price is any price that does not achieve a balance between the market forces of demand and supply. More specifically, the quantity demanded is not equal to the quantity supplied. If quantity demanded exceeds quantity supplied, then a shortage exists. If quantity supplied exceeds quantity demanded, then a surplus exists.

Out of Balance

The 8-Track Tape Market
Disequilibrium prices that create surpluses and shortages can be illustrated using the market for 8-track tapes displayed in this exhibit. This graph was generated after long hours attending the 88th Annual Trackmania 8-Track Tape Collectors Convention at the Shady Valley Exposition Center.
  • 30 Cent: Consider first how a shortage is created at a 30 cent price. Click the [30 Cent] button to highlight this price. At 30 cents, the quantity demanded is 600 tapes and the quantity supplied is 200 tapes. This price does not generate equilibrium. The buyers want to buy 600 tapes, but only 200 tapes are offered for sale by the sellers. This shortage motivates buyers to offer a higher price.

  • 70 Cent: Now consider how a surplus is created at a 70 cent price. Click the [70 Cent] button to highlight this price. At 70 cents, the quantity demanded is 200 tapes and the quantity supplied is 600 tapes. This price does not generate equilibrium, either. The sellers want to sell 600 tapes, but only 200 tapes are being purchased by the buyers. This surplus motivates sellers to charge a lower price.
For sake of completeness and for purposes of comparison, the equilibrium condition in the market can be identified by clicking the [Equilibrium] button. Doing so reveals an equilibrium price of 50 cents and an equilibrium quantity (without shortage or surplus) of 400 tapes.

<= DISEQUILIBRIUM, LONG-RUN AGGREGATE MARKETDISEQUILIBRIUM, SHORT-RUN AGGREGATE MARKET =>


Recommended Citation:

DISEQUILIBRIUM PRICE, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: April 21, 2024].


Check Out These Related Terms...

     | market disequilibrium | market equilibrium | equilibrium price | shortage | surplus | equilibrium | self correction, market | equilibrium quantity | market clearing | stable equilibrium | unstable equilibrium |


Or For A Little Background...

     | market | demand | supply | demand curve | supply curve | demand price | supply price | demand space | supply space | quantity demanded | quantity supplied | law of demand | law of supply |


And For Further Study...

     | comparative statics | market demand | market supply | exchange | competitive market | production possibilities | invisible hand | ceteris paribus | market-oriented economy | marginal analysis |


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