A car dealer who does not have enough customers for a supply of new cars faces:
A) equilibrium.
B) disequilibrium.
C) coordination.
D) excess demand.
If a car dealer does not have enough customers for the supply of new cars, it suggests an imbalance where the supply exceeds the demand. In economic terms, this situation indicates a state of excess supply, also known as disequilibrium.
Therefore, the correct answer is (B) Disequilibrium.
What is Disequilibrium?
Disequilibrium is a situation in which the supply and demand for a good or service in a market are not balanced.
In a state of disequilibrium, the market is not in a stable or balanced condition, leading to either excess demand (shortage) or excess supply (surplus).
When there’s excess demand, meaning consumers want more of a product than producers are willing or able to supply at the prevailing price, it leads to shortages and price increases.
On the other hand, excess supply occurs when producers are supplying more of a product than consumers are willing or able to purchase at the prevailing price, resulting in surplus inventory and price decreases.
Disequilibrium can occur due to factors like changes in consumer preferences, fluctuations in production costs, government interventions, or external shocks to the market.
Market forces work to restore equilibrium over time through adjustments in prices, quantities supplied, and quantities demanded.
Therefore, disequilibrium is the correct answer because the market is not in balance.
As the car dealership does not have enough customers for their supply of new cars, it implies that there is an excess supply (more cars available than there are buyers).
Why is Equilibrium Not the Correct Answer?
Equilibrium is not the correct answer because the market is not in balance; instead, it is facing disequilibrium due to excess supply relative to demand.
In economics, equilibrium refers to a state of balance or stability in a market where the quantity of a good supplied by producers equals the quantity demanded by consumers at a particular price level.
In other words, it’s the point where supply and demand intersect, resulting in neither a shortage nor a surplus of goods.
At equilibrium, there is no tendency for the price to change because the quantity supplied matches the quantity demanded which is usually depicted graphically with the supply and demand curves intersecting at a specific point.
However, in the scenario described in the question, the car dealer does not have enough customers to supply new cars.
This means that the quantity of cars supplied exceeds the quantity demanded, showing a surplus or excess supply. In such a situation, the market is not in a state of equilibrium because there is an imbalance between supply and demand.
Therefore, (A) equilibrium is not the correct answer because it implies a state of balance between supply and demand, which is not the case in the question asked.
Why is Coordination Not the Correct Answer?
Coordination is not the correct answer because coordination is the process of organizing or synchronizing various activities to achieve a common goal or objective.
While coordination is important in economic activities, particularly in ensuring efficient allocation of resources, it doesn’t directly address the situation described in the question.
In the scenario provided, the car dealer is facing an economic condition where the number of customers seeking to purchase new cars is insufficient to match the dealer’s supply.
This situation indicates a disequilibrium in the market, specifically an excess supply relative to demand. Therefore, coordination doesn’t directly capture this economic concept of disequilibrium.
While coordination efforts could help address inefficiencies in the market, the primary issue in this scenario is the imbalance between supply and demand, which leads to disequilibrium. So, coordination is not the correct answer.
Why is Excess Demand Not the Correct Answer?
Think of excess demand as when there’s a long line at a food truck because everyone wants to buy tacos, but the food truck runs out of tacos before everyone gets one. In other words, there’s a lot of demand (people wanting tacos) but not enough supply (tacos available).
In the scenario of the car dealer, it’s the opposite. The dealer has plenty of cars (supply) sitting in the parking lot, but there aren’t enough customers (demand) coming in to buy them. So, there’s not an excess of demand; instead, there’s an excess of supply compared to demand.
Therefore, “excess demand” isn’t the correct answer because it describes a situation where there’s not enough supply to meet the demand, which isn’t what’s happening with the car dealer.
Conclusion
To understand and answer the question ‘a car dealer who does not have enough customers for a supply of new cars faces’ correctly, you need to understand the meaning of the options given to you.
- Equilibrium represents a balanced state where the quantity supplied equals the quantity demanded at a particular price level.
- Disequilibrium occurs when the market is not in balance, either due to excess supply (surplus) or excess demand (shortage).
- Excess demand refers to a situation where the quantity demanded exceeds the quantity supplied at a given price, leading to shortages and price increases.
Therefore, in the scenario of the car dealer facing a lack of customers for their supply of new cars, it represents a case of excess supply or surplus, showing a state of disequilibrium.
