What does disequilibrium refer to in market terms?

Disequilibrium in market terms occurs when the quantity demanded does not equal the quantity supplied. This situation can arise when shifts in consumer preferences, production costs, or external factors lead to an imbalance between the amount of goods that consumers want to buy and the amount that producers are willing to sell at a given price level. When such an imbalance exists, it often results in either a surplus or a shortage in the market.

Surpluses occur when supply outstrips demand, leading to excess inventory that puts downward pressure on prices, while shortages arise when demand exceeds supply, creating upward pressure on prices. In both cases, the market is not in a state of equilibrium, which is defined by the equality of quantity demanded and quantity supplied at a specific price. Therefore, the correct understanding of disequilibrium is tied to this fundamental mismatch between supply and demand dynamics.