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Concepts Of Equilibrium

The Concept of Equilibrium
Meaning

The word equilibrium has been derived from the Latin word "aequilibrium" which means Equal Balance. In economics it entails a point of relax characterised by non-existence of change. It is a condition where absolute concord of the economic strategy of an assortment of market partaker so that no one has a propensity to rework or modify this judgment. Economist Scitovsky defines as "A market or Economy or any other group of persons and firms is in Equilibrium when none of its members feels impelled to change his behaviour. For a group to be in equilibrium therefore all its members must be in equilibrium and the equilibrium behaviour of each member must be compatible with the equilibrium behaviour of all other members."

Static Equilibrium

Prof. Boulding has explained static equilibrium as "A Mechanical analogy may be found in a ball rolling at a constant speed, or better still of a forest in equilibrium where tree sprout grows or dies but where the composition of a forest as a whole remains unchanged." This is static equilibrium which is based on given and invariable prices, volume, revenue, taste, expertise, inhabitants etc.

Dynamic Equilibrium

Dynamic equilibrium has constant changing prices, volume, earnings, tastes, technology etc. Therefore for over an interlude of time, a state of disequilibrium fairly than equilibrium is to be found. If there is difference in the judgement being made by few of the market partakers, it is likely to alter the existing equilibrium situation and there is disequilibrium. Those partakers who are in disequilibrium in their pains to arrive at the equilibrium condition throw others into disequilibrium. Thus a chain reaction sets in which ultimately brings the judgements of all the partakers in synchronization and a novel equilibrium condition is accomplished. Prof. Mehta, has defined as "When after a fixed period the equilibrium position is disturbed it is called Dynamic Equilibrium."

Stable Vs. Unstable Equilibrium

Marshall has defined as "When the demand price is equal to the supply price, the amount produced has no tendency either to be increased or to be diminished it is equilibrium. Such an equilibrium is stable, that is the price, if is displaced a little from it, will tend to return as a pendulum oscillates about its lowest point." Alternatively, equilibrium is unstable when any commotion in equilibrium condition brings in forces which move the structure away from it, never be restored.

Neutral Equilibrium

Neutral equilibrium is another type of equilibrium. When an early equilibrium point is bothered the forces of commotion fetch it to the fresh location of equilibrium where the structure has come to relax. For instance, a ball in the billiard table if bothered will come to rest at the new position to which it has moved. "An egg lying on its side is in neutral equilibrium.

Partial Equilibrium

Prof. Stigler defines as "Partial Equilibrium is one which is based on only a restricted range of data, a standard example is price of a single product, the prices of all other products being held fixed during the analysis." This analysis consists of two types of economic problems. First those relevant to only exacting characteristic of the economic activities of a definite person, firm or industry. For example, it may bind to itself to the market for a single item where its value, the methods of production and the sum of aspects used in its manufacture are taken into account while all other aspects affecting it are supposed to be constant. Second, it studies only the first order consequences of the economic actions it analyses. It pays no attention to the effects on the cost of other products fetched about by the product being analysed and in turn secondary influences of the former on the product.

General Equilibrium

General equilibrium analysis is a widespread study of a number of economic variables, their interconnections and inter-reliance for sympathetic operations of the economic structure as a whole. It fetches mutually the grounds and consequent series of changes in prices and volume of products and services in association to the entire financial system. A financial system can be in general equilibrium only if all customers, all firms, all industries and all factor-services are in equilibrium concurrently and they are interrelated through product and factor cost. It subsists when all cost are in equilibrium each customer expends his given earnings in a mode that yields him the utmost satisfaction all firms in each industry are in equilibrium at all prices and productivity and the supply and demand for productive resources are at equal at equilibrium prices.

The general equilibrium analysis is based on the below postulations.

Postulations

  • There is perfect competition both in the commodity and factor markets

  • Tastes and habits of consumers are given and constant

  • Incomes of consumers are given and constant

  • Factors of production are perfectly mobile between different occupations and places

  • There are constant returns to scale

  • All firms operate under identical cost conditions

  • All units of a productive service are homogeneous

  • There are no changes in techniques of production

  • There is full employment of labour and other resources


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