Meaning and Definitions of Equilibrium
The term “Equilibrium” originated from the Latin word “aequilibrium,” which means “equal weight.” This term was first used in physics to describe a state of balance or rest in which opposing forces or influences are balanced.
When the word “equilibrium” was first used, it meant a state of balance or rest in which different forces or influences are equalized. This idea has been used in physics, economics, and psychology, among other fields, to describe situations where different things are in balance. In economics, the word “equilibrium” is often used to describe a market situation in which the supply and demand for a good or service are balanced.
This means that the price of the good or service stays the same. In physics, equilibrium is a state in which all the forces acting on an object are equal, making the object stay still or move at the same speed in a straight line. In general, equilibrium refers to a state of balance or stability in a system.
In economics, the term “equilibrium” is often used to describe a state of balance in which the supply and demand for a good or service are equal. This results in a stable market price for the good or service. From an epistemological perspective, this concept is important because it helps explain how people decide what to buy and sell and how these decisions affect the overall economy.
For example, if the demand for a particular good or service increases, the market price for that good or service will also increase. This, in turn, can incentivize producers to increase their supply to meet the higher demand and make a profit. In this way, the concept of equilibrium can help us to understand the underlying mechanisms that drive economic decision-making and the functioning of the market.
An example of economic equilibrium can be seen in the market for a particular good or service. The apple market is in equilibrium, with the supply and demand for apples balanced at a specific price. This means that the number of apples produced equals the number purchased by consumers. As a result, the market price for apples is stable, and there are no significant changes in the quantity of apples bought or sold. That is, the quantity demanded for apples equals quantity supplied for apples.
Symbolically;
Qd = Qs
The concept of equilibrium has been defined in various ways by different economists. Some standard definitions of equilibrium include:
The father of modern economics, Adam Smith, defined equilibrium as the point where the quantity of a good demanded by buyers equals the quantity supplied by sellers at a given price.
A prominent economist of the late 19th and early 20th centuries, Alfred Marshall, defined equilibrium as a state where the price of a good is such that the quantity supplied is equal to the quantity demanded, and there is no tendency for the price to change.
Keynes, a leading economist of the 20th century, defined equilibrium as a state where the aggregate demand (total spending in the economy) is equal to the level of aggregate supply (total output produced), and there is no tendency for unemployment or inflation to change.
A prominent economist of the mid-20th century, Friedman, defined equilibrium as a state where the price of a good or service is such that the amount demanded by buyers is equal to the amount supplied by sellers, and there is no excess demand or supply.
A key figure in the Austrian School of economics, Hayek defined equilibrium as a process rather than a state where prices constantly adjust in response to supply and demand changes, and there is no fixed balance point.
These definitions of equilibrium emphasize the idea of balance or stability in a system. They suggest that a state of equilibrium is characterized by the absence of forces that would cause the system to change.
Alfred Marshall, a famous economist from the 1800s, said that equilibrium is “a state in which the economic position of no person or group is likely to change.”
In other words, Marshall’s definition of equilibrium focuses on balance and stability within an economy. It suggests that a state of equilibrium is characterized by the absence of any forces that would cause economic change. This definition is similar to other definitions of equilibrium, which generally emphasize balance and stability in a system. However, Marshall’s definition specifically highlights the idea that equilibrium is a state in which there is no tendency for a change in the economic position of individuals or classes.
Equilibrium Vs Disequilibrium
Equilibrium and disequilibrium are two opposite ways of discussing how a system or market is doing. Equilibrium is a state of balance in which all the parts of a system are in the right place, and there is no tendency for anything to change. Disequilibrium, conversely, refers to a state of imbalance or instability in which there is a tendency for change.
In a state of disequilibrium, the market is not in balance and is, therefore, unstable. This can lead to changes in the market price as buyers and sellers adjust their behavior in response to the imbalance. For example, if the demand for a good or service increases but the supply remains the same, the market price will increase as buyers compete for the limited supply. In this situation, the market is said to be in a state of disequilibrium.
Disequilibrium can also happen when the amount of a good or service on the market increases while the demand stays the same. In this case, the market price will likely decrease as sellers compete for a few buyers. The market is out of balance in both cases and will keep changing until a new balance is found.
For example, consider a market for apples where the supply and demand are initially in equilibrium at a specific price. If the demand for apples suddenly increases, then this will create a state of disequilibrium in the market. The higher demand will cause the market price for apples, incentivizing producers to increase their supply to meet the higher demand and make a profit. As the supply increases to meet the higher demand, the market will eventually return to equilibrium at the new, higher price.
- Also, read about Bad Equilibrium in Economics
In short, the main difference between equilibrium and disequilibrium is that equilibrium is a state of balance and stability, while disequilibrium is a state of imbalance and instability. In a market setting, equilibrium is defined as a stable market price, whereas disequilibrium is defined as a changing market price.
Here is a table comparing and contrasting equilibrium and disequilibrium in economics:
| Basis of Difference | Equilibrium | Disequilibrium |
|---|---|---|
| Definition | A state of balance or stability in a market or system, where the forces of supply and demand are balanced, and there is no tendency for change. | A state of imbalance or instability in a market or system, where the forces of supply and demand are not in balance, and there is a tendency for change. |
| Market condition | The quantity of a good or service supplied by sellers is equal to the quantity demanded by buyers, and there is no excess supply or demand. | The quantity of a good or service supplied by sellers is either greater or less than the quantity demanded by buyers, resulting in excess supply or demand. |
| Price | The price of a good or service is such that it clears the market, i.e., there is no tendency for the price to change. | The price of a good or service may be too high or too low, resulting in either excess supply or demand and a tendency for the price to change. |
| Economic indicators | In a state of equilibrium, there is no tendency for unemployment or inflation to change, and the economy is considered operating at its full potential. | In a state of disequilibrium, there may be high unemployment, inflation, or both, as resources are not being allocated efficiently. |
| Role of government | In a state of equilibrium, there may be little need for government intervention, as market forces are operating efficiently. | In a state of disequilibrium, government intervention may be necessary to restore balance and stability to the market or system. |
Properties of Equilibrium:
In many fields, equilibrium is used to talk about a state of balance or stability in a system. In general, a state of equilibrium is characterized by the following properties:
- Balance: When a system is in a state of equilibrium, its parts are balanced. This means no opposing forces or influences would cause the system to change.
- Stability: A system is usually stable when it is in a state of equilibrium, which means that it doesn’t tend to change. This means the system will stay as it is unless something outside it changes it.
- Resistance to change: A state of equilibrium is usually resistant to change. This means it takes a big force or influence outside the system to upset the balance and move it out of equilibrium.
- Self-correcting: In many cases, a system in equilibrium will tend to self-correct if it is disrupted. This means that if something external causes the system to move away from equilibrium, it will return to equilibrium without needing external intervention.
- Reversibility: In many cases, a system in equilibrium can be disrupted and then reversibly return to equilibrium. This means that if the system is upset and moves away from equilibrium, the forces or influences that caused the upset can bring it back to its original state of equilibrium.
Also Read Stability test: Existence, Uniqueness, and Stability Problem.