In economics, disequilibrium describes a market that is not in equilibrium: the quantity supplied is not equal to the quantity demanded at the actual price.[1]

Disequilibrium can occur extremely briefly or over an extended period of time. Typically in financial markets it either never occurs or only momentarily occurs, because trading takes place continuously and the prices of financial assets can adjust instantaneously with each trade to equilibrate supply and demand. At the other extreme, many economists view labor markets as being in a state of disequilibrium—specifically one of excess supply—over extended periods of time. Goods markets are somewhere in between: prices of some goods, while sluggish in adjusting due to menu costs, long term contracts, and other impediments, do not stay at disequilibrium levels indefinitely, and many goods markets such as commodity markets are highly organized and liquid and have essentially instantaneous adjustment of their prices to equilibrium levels

Causes of disequilibrium

Generally, the major causes for disequilibrium in the markets if the  deficiencies created either in the aggregate demand or aggregate supply side of  the economy. This means that in such circumstances the market does not clear.   Main causes of disequilibrium are understood in the light of the economic model  s followed by scholars.  For instance, the Keynesian theory’s causes differ from  that of classical economists. For instance, following Keynesians’ view,  disequilibrium arises when there are disparities between leakages and injections  where as classical economists argue that if such cases arise, price always  adjust to bring the economy back to equilibrium(Axel Leijonhufvud, Swedish  journal of economics; p.27-48).

Comment Stream