Explain the concept of equilibrium in the market. What happens when there is a disequilibrium between supply and demand?

Equilibrium in the market refers to a state where the quantity of a good or service supplied by producers is equal to the quantity demanded by consumers. This balance is achieved when the market price of the good or service settles at a level where the quantity supplied equals the quantity demanded.

When there is a disequilibrium between supply and demand, it means that the quantity supplied does not equal the quantity demanded at the prevailing market price. This can lead to either a surplus or a shortage in the market.

If there is an excess supply (surplus), it means that producers are producing more of the good or service than consumers are willing to buy at the current price. This can lead to a decrease in prices as producers try to sell off their excess inventory, eventually reaching a new equilibrium where supply and demand are once again balanced.

On the other hand, if there is a shortage, it means that consumers are demanding more of the good or service than producers are able to supply at the current price. This can lead to an increase in prices as producers try to capitalize on the high demand, eventually reaching a new equilibrium where supply and demand are once again balanced.

In both cases, market forces such as price adjustments, changes in production levels, and shifts in consumer preferences work to bring the market back to equilibrium.