Equilibrium is a state of balance in an economy, and can be applied in a number of contexts. In elementary micro-economics, market equilibrium price is the price that equates demand and supply in a particular market. In this situation the market ‘clears’ at the equilibrium price – everything that is taken to market by producers is taken out of the market by consumers. This situation is commonly referred to as ‘partial’ equilibrium.
In introductory macro-economics, national income is in equilibrium when aggregate demand (AD) equals aggregate supply (AS).
Disequilibrium occurs when a variable changes to create an excess of demand or supply, causing a ‘movement’ to a new equilibrium position. A sudden change is called an economic shock.
General equilibrium theory attempts to show how all markets move towards a co-ordinated equilibrum – this situation was first described by French 19th century economist Leon Walras.
Stagflation is a combination of high inflation, high unemployment, and stagnant economic growth. Because inflation isn't supposed to occur in a weak economy, stagflation is an unnatural situation. Slow growth prevents inflation in a normal ...
The laissez-faire economic theory centers on the restriction of government intervention in the economy. According to laissez-faire economics, the economy is at its strongest when the government protects individuals' rights but otherwise doesn't intervene. The ...
What Is Adverse Selection? Adverse selection is a term that describes the presence of unequal information between buyers and sellers, distorting the market and creating conditions that can lead to an economic collapse. It develops ...
Explaining The K-Shaped Economic Recovery from Covid-19 A K-shaped recovery exists post-recession where various segments of the economy recover at their own rates or levels, as opposed to a uniform recovery where each industry takes the same ...
Does Public Choice Theory Affect Economic Output? Both on paper and in real life, there is a solid relationship between economics, public choice, and politics. The economy is one of the major political arenas after all. ...
Largest Retail Bankruptcies Caused By 2020 Pandemic As we know at this point, the COVID-19 pandemic has thrown major companies in the US and the world over into complete havoc. Many have filed for bankruptcy, with an ...