Both excess supply and excess demand are a result of:

Both excess supply and excess demand are a result of:

a. equilibrium

b. disequilibrium

c. overproduction

d. elasticity

Answer: b. disequilibrium

Two other market conditions which can be obtained in a state of disequilibrium are and are also the concepts of overproduction and elasticity. If the quantity supplied is less than the quantity demanded, there is a shed of disequilibrium which means there is excess supply or on the other hand, excess demand. If therefore the quantity supplied exceeds the quantity demanded at a certain market price, then the market attains an excess supply or surplus. If at the current market price, the quantity demanded is more than the quantity supplied it is termed as excess demand or shortage. Such conditions of disequilibrium simply indicate that the market has moved to a position of imbalance and that there is no flux or ‘movement’ through the changes in the price to restore a new equilibrium of quantity supplied and demanded.