ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -in a market setting, disequilibrium occurs when quantity supplied is not equal to the quantity demanded; when a market is experiencing a disequilibrium, there will be either a shortage or a surplus.

Detailed explanation-2: -The equilibrium is the only price where quantity demanded is equal to quantity supplied. At a price above equilibrium, like 1.8 dollars, quantity supplied exceeds the quantity demanded, so there is excess supply.

Detailed explanation-3: -Excess supply is one of the two types of disequilibrium in a perfectly competitive market, excess demand being the other. When quantity supplied is greater than quantity demanded, the equilibrium level does not obtain and instead the market is in disequilibrium.

Detailed explanation-4: -However, if a market is not at equilibrium, then economic pressures arise to move the market toward the equilibrium price and equilibrium quantity. This happens either because there is more supply than what the market is demanding or because there is more demand than the market is supplying.

Detailed explanation-5: -The equilibrium price is the price at which the quantity demanded equals the quantity supplied. It is determined by the intersection of the demand and supply curves. A surplus exists if the quantity of a good or service supplied exceeds the quantity demanded at the current price; it causes downward pressure on price.