Markets do not always sit exactly at the equilibrium price. When price is “too high” or “too low,” predictable gaps arise between quantity demanded and quantity supplied, triggering pressures that push the market back toward equilibrium.

Disequilibrium: when price is not market-clearing

A market disequilibrium occurs when the market price is set at a level where $Q_d \neq Q_s$, meaning buyers and sellers’ plans do not match.

This diagram presents a standard demand-and-supply setup with price on the vertical axis and quantity on the horizontal axis, emphasizing how the intersection determines the market-clearing outcome. It works well as a visual anchor for the condition $Q_d = Q_s$ at equilibrium versus $Q_d \neq Q_s$ at disequilibrium prices. The clean labeling also helps students practice reading quantities at a given price from the curves. Source

Disequilibrium is revealed through either a surplus or a shortage, and it creates incentives for market participants to adjust behavior.

A key AP skill is identifying whether a given price is above or below equilibrium and then tracing the direction of changes in price and quantity exchanged that follow.

Disequilibrium is not just a graph concept; it shows up as unsold inventories, stockouts, waiting lines, and rapid price changes as firms and consumers respond to incentives.

Surpluses (excess supply): price above equilibrium

A surplus happens when the market price is above the equilibrium price. At that higher price, producers want to sell more, but consumers want to buy less, so $Q_s > Q_d$. The gap shows up as unplanned inventory accumulation for firms.

Typical market signals and pressures in a surplus:

• Inventories rise: firms cannot sell all they planned to sell.

• Firms face an incentive to cut prices to attract additional buyers.

• Some producers may reduce output (fewer hours, smaller orders of inputs) because selling at the current price is difficult.

• Competitive pressure encourages markdowns, promotions, or improved terms (which are forms of price competition in practice).

Graphically, at a price above equilibrium, the chosen price intersects the demand curve at a lower quantity than where it intersects the supply curve; the vertical difference between those quantities is the surplus amount.

This supply-and-demand graph marks the equilibrium point where the curves intersect, then contrasts a price above equilibrium with a price below equilibrium. At a price above equilibrium, the diagram shows quantity supplied exceeding quantity demanded (a surplus). At a price below equilibrium, it shows quantity demanded exceeding quantity supplied (a shortage). Source

As price falls, there is a movement along both curves: quantity demanded rises and quantity supplied falls, shrinking the surplus.

Shortages (excess demand): price below equilibrium

A shortage happens when the market price is below the equilibrium price. At that lower price, consumers want to buy more, but producers want to sell less, so $Q_d > Q_s$. The gap shows up as stockouts and frustrated buyers.

Typical market signals and pressures in a shortage:

• Shelves empty or services become fully booked.

• Buyers have an incentive to bid up the price (willingness to pay increases when the good is scarce).

• Sellers gain an incentive to raise prices because the good sells quickly at the current price.

• Firms may increase output (more labour hours, expedited shipments, expanded capacity use) if higher prices make additional production worthwhile.

Graphically, at a price below equilibrium, the demand curve indicates a larger quantity than the supply curve at that price; the difference is the shortage. As price rises, quantity demanded falls and quantity supplied rises (movements along the curves), shrinking the shortage.

Measuring the size of a surplus or shortage

The size of disequilibrium is the difference between planned quantities at the current price.

In AP terms, always compute these using the quantities read at the same price (the imposed or current market price), not at equilibrium unless that is the given price.

How market forces restore equilibrium

In competitive markets, price acts as a signal and incentive:

• With a surplus, sellers compete to get rid of excess inventory, pushing price down; this increases $Q_d$ and decreases $Q_s$ until the market clears.

• With a shortage, buyers compete for limited goods and sellers recognise the opportunity to raise prices, pushing price up; this decreases $Q_d$ and increases $Q_s$ until the market clears.

The adjustment continues until there is no remaining tendency for price to change—when buyers can purchase the quantity they want and sellers can sell the quantity they want at the prevailing price (the market-clearing outcome).