Question

In: Economics

with the aid of a diagram discuss equilibrium and disequilibrium and relate to their effect on...

with the aid of a diagram discuss equilibrium and disequilibrium and relate to their effect on the economy in the season of covid 19

Solutions

Expert Solution

The diagram is as below:

Equilibrium: the demand and supply meet at point E, creating equilibrium. The corresponding price and quantity are P and Q respectively. In COVID-19, such price is not attainable because the purchasing ability of consumers are reduced in absence of their incomes. The market can’t act as it looks. People are reluctant of buying goods.

Disequilibrium: due to this pandemic effect, the government comes forward for regulating price. Although the equilibrium price is P, the government imposes P1 price. Therefore, the market price becomes P1. This creates shortage in the economy, since demand is higher than supply by LU. Therefore, although the price reduces, it reduces the quantity consumption from Q to Q2. The consumers can’t go for import (Q1Q2) from other countries because of COVID-19 restriction. Whatever supply is there (Q2), consumers have to purchase that only.


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