Market equilibrium, disequilibrium & price mechanism

Equilibrium - this is when the quantity demanded by consumers equals the quantity supplied by producers where there is no excess supply

Disequilibrium - this occurs when the quantity demanded by consumers does not equal the quantity supplied by producers, resulting in either excess supply or excess demand.

Price mechanism

• Allocation of Resources: Prices tell producers where to focus. High prices mean make more, low prices mean make less.

• Rationing Function: Prices control who can buy. Higher prices mean fewer buyers, limiting access.

• Signaling Function: Prices send messages. When prices rise, it tells producers to produce more.

• Incentives: Higher prices motivate producers to make more and may make some consumers buy less.