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FIXED COST: In general, cost that does not change with changes in the quantity of output produced. More specifically, fixed cost is combined with the adjectives "total" and "average" to indicate the overall level of fixed cost or the per unit fixed cost. Fixed cost is incurred whether of not any output is produced. The same fixed cost is incurred at any and all output levels. This means that total fixed cost is, in fact, FIXED. However, it also means that average fixed cost, or fixed cost per unit, declines as the output level increases. Spreading out $100 over 1,000 units gives a lower per unit fixed cost that spreading out $100 over 10 units.
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                           MARKET DISEQUILIBRIUM: The state of the market that exists when the opposing market forces of demand and supply do achieve a balance and there is an inherent tendency for change. Market disequilibrium results if the market is not in equilibrium. More specifically, market disequilibrium results if the demand price is not equal to the supply price and the quantity demanded is not equal to the quantity supplied. In general, disequilibrium results if opposing forces are not in balance. For market disequilibrium, the opposing forces that are out of balance are demand and supply. The result of the imbalance between these two forces is the existence of a shortage or surplus, which induces a change in the price.Shortage and SurplusMarket disequilibrium is characterized by either a surplus or a shortage. Both arise due to the inequality between quantity demanded and quantity supplied.- Shortage: A shortage exists if the quantity demanded exceeds the quantity supplied at the current market price. This condition emerges if the market price is below the equilibrium price. With a market shortage, buyers are unable to buy as much of the good as they would like at the current price. As such, they are motivated to raise the price.
- Surplus: A surplus exists if the quantity supplied exceeds the quantity demanded at the current market price. This condition emerges if the market price is above the equilibrium price. With a market surplus, sellers are unable to sell as much of the good as they would like at the current price. As such, they are motivated to lower the price.
Market disequilibrium exists with a surplus or shortage because the price does not remain unchanged. The imbalance between quantity demanded and quantity supplied prompts the price to change. A shortage prompts the price to rise and a surplus causes the price to fall.Out of Balance| The 8-Track Tape Market |  |
Market disequilibrium 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.- Shortage: Consider first how a shortage is created at a 30 cent price. Click the [Shortage] button to highlight this price. At 30 cents, the quantity demanded is 600 tapes and the quantity supplied is 200 tapes. This is not equilibrium. The buyers cannot buy all that they want. They 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. This shortage is clearly NOT equilibrium.
- Surplus: Now consider how a surplus is created at a 70 cent price. Click the [Surplus] button to highlight this price. At 70 cents, the quantity demanded is 200 tapes and the quantity supplied is 600 tapes. This is not equilibrium. The sellers cannot sell all that they want. They want to sell 600 tapes, but only 200 tapes are being purchased by the buyers. This surplus motivates sellers to charge a lower price. This shortage is clearly NOT equilibrium.
For sake of completeness and for purposes of comparison, the equilibrium condition in the market can be identified by clicking the [Balance] button. Doing so reveals an equilibrium price of 50 cents and an equilibrium quantity (without shortage or surplus) of 400 tapes.
Recommended Citation:MARKET DISEQUILIBRIUM, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: January 15, 2025].
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BROWN PRAGMATOX
[What's This?]
Today, you are likely to spend a great deal of time going from convenience store to convenience store seeking to buy either a pleather CD case or a how-to book on fine dining. Be on the lookout for strangers with large satchels of used undergarments.
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The New York Stock Exchange was established by a group of investors in New York City in 1817 under a buttonwood tree at the end of a little road named Wall Street.
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"My philosophy of life is that if we make up our mind what we are going to make of our lives, then work hard toward that goal, we never lose - somehow we win out." -- President Ronald Reagan
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CARIFTA
Caribbean Free Trade Association
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