Equilibrium Conditions

Equilibrium Conditions

Equilibrium The conditions of equilibrium will vary according to the time period under consideration. There are three time periods relevant to supply: (a) momentary, in which equilibrium conditions relate to the disposal of a given stock of a commodity; (b) short run, in which the equilibrium output (as a scale of flow) is related to a given number of producers operating with given stocks of equipment; (c) long-run, in which the number of producers and the scale of equipment at their disposal are assumed to be variable.

Similarly, in the markets for factors of production, equilibrium price and quantity conditions are related to considerations of factor productivity (underlying the demand behaviour of producers) and psychological attitudes (e.g. towards income and leisure as alternatives) underlying supply. With labour as a whole, however, the statement of long-run' equilibrium conditions is confined to the rate of utilization of a given stock, since long-run variation in the size of the total supply of labour (population) is not necessarily related to its 'price' or reward in any systematic way.

Equilibrium may be stable or unstable. If there is a tendency for the original equilibrium to be restored whenever price or output is slightly disturbed, equilibrium is said to be stable. If equilibrium is stable, any change in the conditions of demand or supply will then start up a process of adjustment towards a new equilibrium situation. If, however, an accidental disturbance of either price or output produces no such equilibrating tendencies, equilibrium is said to be unstable, and there is no certainty that a change in the conditions of demand and supply will result in a movement towards a new equilibrium. The examination of unstable conditions is important in dynamic analysis.

Equilibrium may also refer to either particular ('partial') or general equilibrium. Particular equilibrium (of the kind considered above in this entry) assumes that all other prices and quantities in the economy are constant while the equilibrium conditions relating to one commodity or sector are examined. General equilibrium is concerned with the conditions under which there will be a simultaneous equilibrium of prices and outputs in all the different markets of the whole economic system.

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