If you've been looking for an explanation of what equilibrium definition means, then you've come to the right place. In economics, equilibrium definition is a state by which economic agents achieve the best possible use of their resources in the face of changing economic conditions. The goal is to maximize the welfare of current consumers while minimizing the adverse effects on future consumers when changes in the market occur. Just as there are many different forms of economics, there are also many different definitions of equilibrium. The most commonly used (and therefore vague) definition in economics is “the ability of a state or nation to meet its expenses while at the same time maintaining a favorable balance of financial resources in its total economy.”
The difficulty with this definition is that it is very broad and quite vague. Most people can agree on the idea that, for instance, a state in which taxes are high and other expenses are lower than revenues is inefficient and will default eventually. But they would not call it a state of equilibrium, for there really is no way to measure efficiency or balance. Similarly, a nation that runs budget deficits and increases public debt will be viewed by the rest of the world as operating below optimum economic capacity. To this end, it may be appropriate to define balance as “a state of a market economy at least so far as the demands of its consumers are satisfied.”
Another problem with the equivocation definition is that it relies almost entirely on the concept of prices. There are some who argue that prices are determined by demand, but others who believe that price is determined by production. These equivocate economists would argue that equilibrium is achieved through a careful balance of production and technology. They could describe this in terms of demand and supply curves.
It is not difficult to find explicit descriptions of equilibrium, though, as there are journals devoted entirely to the subject. For simplicity's sake, however, we will stick to our usual equivocation definition. We will examine three broad categories of potential disturbances in equilibrium. These are technological change, changes in government policy, and international trade. Let us start with technological change.
Technological change is hard to measure. Changes in a business cycle can occur rapidly, causing a shock to the equilibrium of that business cycle. For example, a new technology that is found to be more cost efficient at a particular job may cause the costs of that technology to rise above or below equilibrium. As more industries adopt the new technology, this kind of rapid change occurs more frequently, which leads to a further increase in relative costs. In the long run, this has a significant effect on the overall equilibrium of the economy.
A second potential disturbance to the equilibrium of the economy occurs through changes in government policy. Governments can alter their domestic policies in order to encourage certain economic activities, which can upset the equilibrium. The third potential disturbance to the equilibrium is international trade. International trade affects the domestic balance of payments in any country, since trade produces and reaps goods and services from other countries. For this reason, any definition of equilibrium needs to include the concept of international economic interdependence, in addition to domestic economic interdependence.
What Is Equilibrium? – equilibrium definition economics | equilibrium definition economics
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