Disequilibrium

Kathryn Meyer & Nick Szalay

Definition: A situation where internal and/or external forces prevent market equilibrium from being reached or cause the market to fall out of balance. This can be a short-term byproduct of a change in variable factors or a result of long-term structural imbalances. Therefore scarcity and shortage are apart of disequilibrium.

Meaning behind it: This theory was originally put forth by economist John Maynard Keynes. Many modern economists have likened using the term "general disequilibrium" to describe the state of the markets as we most often find them. Keynes noted that markets will most often be in some form of disequilibrium - there are so many variable factors that affect financial markets today that true equilibrium is more of an idea; it is helpful for creating working models, but lacks real-world validation.

Example: Having a shortage of water has caused wars through out Africa and India, although in 1st and 2nd world countries like America and France, we have much cleaner and a larger amount of water.

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