Introducing Supply and Demand
Impacts of Surpluses and Shortages on Market Equilibrium
The existence of surpluses or shortages in supply will result in disequilibrium, or a lack of balance between supply and demand levels.
Infer the outcomes of departures from equilibrium using the model of supply and demand
- Surpluses, or excess supply, essentially indicates that the quantity of a good or service exceeds the demand for that particular good at the price in which the producers would wish to sell ( equilibrium level).
- In a perfectly competitive market, excess supply is equivalent to the quantity available in the market beyond the equilibrium point of intersection between supply and demand. This will result in a shift in market equilibrium towards lower price points.
- Shortage is a term used to indicate that the supply produced is below that of the quantity being demanded by the consumers. This disparity implies that the current market equilibrium at a given price is unfit for the current supply and demand relationship.
- In a perfectly competitive market, a shortage in supply will ultimately result in a shift in the equilibrium point, transitioning towards a higher price point due to the limited supply availability.
- Disequilibrium: The loss of equilibrium or stability, especially due to an imbalance of forces.
- surplus: That which remains when use or need is satisfied, or when a limit is reached.
- shortage: Not enough or not sufficient for a given demand.
In the analysis of market equilibrium, specifically for pricing and volume determinations, a thorough understanding of the supply and demand inputs is critical to economics. Surpluses and shortages on the supply end can have substantial impacts on both the pricing of a specific product or service, alongside the overall quantity sold over time. Shifts such as these in the supply availability results in disequilibrium, or essentially a lack of balance between current supply and demand levels. Surpluses and shortages often result in market inefficiencies due to a shifting market equilibrium.