Interpretation of disequilibrium using demand and supply schedules

What is a Market?

Think of a market like a school cafeteria. Students (buyers) bring their money (budget) and choose what to eat (goods). The cafeteria staff (sellers) decide how many items to prepare based on how many students want them. The price of a sandwich is the “cost” that balances the number of sandwiches bought and sold.

Demand and Supply Schedules

In economics we use tables to show how much people want to buy (demand) and how much producers are willing to sell (supply) at different prices.

Similarly, a supply schedule shows how many units producers are ready to sell at each price.

What Happens When the Market is Not in Balance?

When the quantity demanded does not equal the quantity supplied, we have a disequilibrium:

• Excess Demand (Shortage) – more people want the good than there are goods available. Prices tend to rise.
• Excess Supply (Surplus) – more goods are available than people want to buy. Prices tend to fall.

How to Spot Disequilibrium Using Schedules

1. Pick a price point from the tables.
2. Read the quantity demanded and supplied at that price.
3. Compare the two numbers:
   • If Demand > Supply, there is a shortage.
   • If Supply > Demand, there is a surplus.
   • If they are equal, the market is in equilibrium.

Remember: the market will move towards equilibrium as prices adjust.

Example Problem

Using the tables above, find the equilibrium price and quantity.

1. Check price $8: Demand = 45, Supply = 35 → Demand > Supply (shortage).
2. Check price $10: Demand = 30, Supply = 20 → Demand > Supply (shortage).
3. Check price $5: Demand = 60, Supply = 55 → Demand > Supply (shortage).
4. Since demand is always higher than supply at these prices, the market would push the price up until supply catches up. In this simplified example, the equilibrium would be at a price where the two curves cross – you can sketch the curves to see the intersection.

📌 Tip: If you can’t find an exact match in the tables, estimate the equilibrium by looking at the trend.

Exam Tips for IGCSE Economics 0455

• Read the question carefully – look for words like excess demand or surplus.
• Use the tables to find the price where demand equals supply.
• Show your work: write the steps you followed to identify the equilibrium.
• Use diagrams if allowed – a simple supply and demand graph can illustrate your answer.
• Remember the price mechanism: prices rise when there is a shortage and fall when there is a surplus.

💡 Analogy: Think of a game of musical chairs – when the music stops, the number of chairs (supply) must match the number of players (demand). If there are more players than chairs, some will be left out (shortage). If there are more chairs than players, some chairs will be unused (surplus).