Glossary term
Disequilibrium
Disequilibrium is a market condition where supply and demand are not balanced at the current price.
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What Is Disequilibrium?
Disequilibrium is a market condition in which supply and demand are not balanced at the current price. Instead of the quantity supplied matching the quantity demanded, the market has either a shortage or a surplus.
In basic economics, equilibrium is the price and quantity where buyers and sellers are in balance. Disequilibrium describes the adjustment period or friction that exists when the market is away from that point.
Key Takeaways
- Disequilibrium occurs when supply and demand are not balanced.
- A shortage means quantity demanded exceeds quantity supplied at the current price.
- A surplus means quantity supplied exceeds quantity demanded at the current price.
- Prices, production, inventories, or policy changes may move the market toward a new equilibrium.
- Disequilibrium can be temporary or persistent depending on the cause.
How Disequilibrium Works
If a price is below the equilibrium level, buyers may want more than sellers are willing or able to provide. That creates a shortage. If a price is above equilibrium, sellers may produce more than buyers want to purchase. That creates a surplus.
Markets often respond through price changes, production changes, substitutions, rationing, waiting lists, inventory adjustments, or government intervention. The adjustment is not always instant because contracts, regulations, capacity limits, search costs, and expectations can slow the process.
Disequilibrium can also occur after a demand or supply shock. A sudden change in energy costs, labor availability, technology, or consumer preferences can move the market away from its prior balance.
Common Types of Disequilibrium
Type | What happens | Example pressure |
|---|---|---|
Shortage | Demand exceeds supply | Prices may rise or goods may be rationed |
Surplus | Supply exceeds demand | Prices may fall or inventory may build |
Policy-driven gap | Rules hold price away from clearing level | Price ceiling or price floor |
Shock-driven gap | Demand or supply shifts quickly | Weather, war, technology, or sudden preference change |
Why It Matters
Disequilibrium helps explain real-world market stress. Empty shelves, excess inventory, long hiring delays, housing shortages, and commodity gluts can all reflect a market that is adjusting to a new balance.
It also reminds readers that prices carry information. When prices cannot adjust, adjust slowly, or are distorted, shortages and surpluses may last longer than expected, especially when policy or capacity constraints remain in place.
The Bottom Line
Disequilibrium means a market is out of balance at the current price. It usually shows up as a shortage or surplus and continues until prices, quantities, policy, or expectations adjust.