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Economic equili­brium

Economic equili­brium is a state where economic forces such as supply and demand are balanced and in the absence of external influences the (equil­ibrium) values of economic variables will not change.

Price is above market equili­brium

Surplus. Higher supply than demand.
Equili­brium price falls
Equili­brium qty rises
Happens if new tech released or new firm enters market

Price below market equili­brium

Shortage. Higher demand than supply.
Equili­brium Price rises
Equili­brium qty falls
Demand curve shifts to the right
Maybe because incomes have increased or population has grown.

Effect of an increase in supply / surplus


Key equili­brium terms

Compet­itive equili­brium
In a compet­­itive equili­­brium, supply equals demand.
Ceteris Paribius 'all else being equal'
Requires that when analysing the relati­­onship between two variables all else must be held constant.
Market equili­brium
A condition where a market price is establ­­ished through compet­­ition such that the amount of goods or services sought by buyers is equal to the amount of goods or services offered by sellers.
Compet­itive market equili­brium
A market equili­brium with many buyers and many sellers
Qty supplied > qty demanded. Price is above equili­brium.
Qty supplied < qty demanded. Price is below equili­brium

Effect of an increase in demand / shortage


Properties of equili­brium

Three basic properties of equili­brium in general proposed by Huw Dixon:
The behavior of agents is consis­tent.
No agent has an incentive to change its behavior
Equili­brium is the outcome of some dynamic process (stabi­lity).

Comple­mentary goods

Comple­mentary goods: price change of one effects quantity demanded of the other.
Price increasing on compli­mentary
See surplus
Price decreasing on compli­mentary
See shortage


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