Which of the following best describes a situation of market disequilibrium? 1. t
ID: 1220181 • Letter: W
Question
Which of the following best describes a situation of market disequilibrium?
1.
the plans of buyers to buy are out of sync with the plans of sellers to sell
2.
the weight of excess demand does not balance the weight of excess supply
3.
price does not equal quantity
4.
price and quantity exceed total revenue
1.
the plans of buyers to buy are out of sync with the plans of sellers to sell
2.
the weight of excess demand does not balance the weight of excess supply
3.
price does not equal quantity
4.
price and quantity exceed total revenue
Explanation / Answer
A disequilibrium occar when there is mismatch between demand and supply, i.e., either there is excess demand or excess supply.
So the answer will be the weight of excess demand does not balance the weight of excess supply.
A good example, could be tickets for a football stadium. With a strictly limited supply (40,000). Demand for big games may far exceed supply. Football clubs are likely to avoid setting a market clearing price because they don’t want to be accused of being ‘elitist’. Therefore, they may keep prices well below the market clearing price. (where demand = supply) The problem is that many fans who want to watch the game can’t get in. It may lead to a black market where some resell tickets to those willing to pay a much higher price.
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