This market is in disequilibrium
Sellers are frustrated that products are selling so quickly at a price that is obviously too low
Some buyers are frustrated as they will not be able to purchase the product
Sellers realise they can increase prices & generate more revenue and profits
Sellers gradually raise prices
This causes a contraction in QD as some buyers no longer desire the good/service at a higher price
This causes an extension in QS as other sellers are more incentivised to supply at higher prices
In time, the market will have cleared the excess demand & arrive at a position of equilibrium (PeQe)
Different markets take different lengths of time to resolve disequilibrium. For example, retail clothing can do so in a few days. Whereas the housing market may take several months, or even years
Disequilibrium - Excess Supply
Excess supply occurs when the supply is greater than the demand
It can occur when prices are too high or when demand falls unexpectedly
During the later stages of the pandemic the market for face masks was in disequilibrium
Diagram Analysis
At a price of P1, the quantity supplied of face masks (Qs) is greater than the quantity demanded (Qd)
There is a surplus in the market equivalent to QdQs
Market Response
This market is in disequilibrium
Sellers are frustrated that the masks are not selling and that the price is obviously too high
Some buyers are frustrated as they want to purchase the masks but are not willing to pay the high price
Sellers will gradually lower prices in order to generate more revenue
This causes a contraction in QS as some sellers no longer desire to supply masks
This causes an extension in QD as buyers are more willing to purchase masks at lower prices
In time, the market will have cleared the excess supply & arrive at a position of equilibrium (PeQe)