• Real world markets are constantly changing & are referred to as dynamic markets

• Market equilibrium can change every few minutes in some markets (e.g. stocks and shares), or every few weeks or months in others (e.g clothing)

•  Any change to a condition of demand or supply will temporarily create disequilibrium & market forces will then seek to clear the excess demand or supply

Real World Example: Changes to Demand That Increase Price

• During lockdowns associated with the Covid-19 pandemic, furniture retailers experienced unexpectedly high demand for their products (especially desks and sofas)

Diagram Analysis

• Due to the Covid mandated change of working from home, consumers experienced a temporary change in taste as they sought to set up comfortable home offices

  • This led to an increase in demand for desks from D1→D2

• At the original market clearing price of P1, a condition of excess demand now exists

  • The demand for desks is greater than the supply

• In response, suppliers raise prices

  • This causes a contraction of demand and an extension of supply leading to a new market equilibrium at P2Q2

  • Both the equilibrium price (P2) and the equilibrium quantity (Q2) are higher than before

  • The excess demand in the market has been cleared