|
|
| Line 1: |
Line 1: |
| In [[economics]], '''economic equilibrium''' is a state where economic forces such as [[supply and demand]] are balanced and in the absence of external influences the ([[:wikt:equilibrium|equilibrium]]) values of economic variables will not change. For example, in the standard text-book model of [[perfect competition]], equilibrium occurs at the point at which quantity demanded and quantity supplied are equal.<ref>Hal R. Varian, ''Microeconomic Analysis'', Third edn. Norton, New York 1992</ref> '''Market equilibrium''' in this case refers to a condition where a market price is established through competition such that the amount of goods or services sought by [[Law of supply and demand|buyers]] is equal to the amount of goods or services produced by [[Law of supply and demand|sellers]]. This price is often called the '''competitive price''' or [[market clearing]] price and will tend not to change unless demand or supply changes and the quantity is called "competitive quantity" or market clearing quantity.
| | Taking certain diet plans to lose weight is not convenient. Some are lucrative but several are failed. While along the means of dieting, we have to sacrifice for the new we thus we will feel deprived. However, permanent weight reduction plus healthy body without suffering will be achieved that is something I would like to share with we here.<br><br>Low carb diet has moreover proved to be amidst the [http://safedietplans.com diets] fast for women. It involves low fat vegetables that are nonetheless wealthy inside minerals and vitamins.<br><br>One may not have to go to the gym or the spa or any fitness center plus spend much simply to slim down to obtain that longed for sexy body. There are many books obtainable in the bookstore which offer fat reduction programs that are advantageous and for free, of course the books are not though. These weight loss programs, or diet plans are gaining huge popularity with thus much publicity, reviews plus critiques which one may be confused which precisely to follow. So before choosing that weight loss plan to follow, try reading these summaries regarding the most popular diet programs out now.<br><br>If you have to lose fat quickly (like 48 hours), this diet will interest we. For 48 hours all you're permitted to consume is a specialized fruit juice. It is supposed to have all which the body demands for which time. Many people have reported noticeable weight reduction in those 48 hours. The question is, what arises inside the upcoming 48?<br><br>The calories which are needed by the human body are about 1200 calories a day. In fact, rather of any of the diets to lose weight quickly, I would suggest that you take the menu 1200 calorie diet. This type of diet plan involves a perfect measure of the recommended calories a day and also includes a balance of nutrition. The balance of nutrition means that 75% of the diet involves foods conveniently digested plus 25% involves foods which are not, and are intended to be stored. These foods are stored as fat, some kinds of proteins and carbohydrates, whenever consumed inside excessive amounts (over 25%) lead to problems such as overweight and obesity.<br><br>A fantastic approach to do healthy weight reduction success is to join all types of diet food into healthy eating plans, taking advantage of the benefits of every ingredient. Capsaicin is combined with caffeine, green tea, plus cinnamon to give a moderate plus sensible increase in calories burned every day. The role of capsaicin is to stimulate the sympathetic nervous system. This ingredient offers only the positive and healthy effects.<br><br>So, a 3-day diet should not be done regularly to avoid getting into the yoyo effect. And many incredibly, this diet is certainly no for everybody as it is very a difficult slimming system. |
| | |
| == Properties of equilibrium ==
| |
| | |
| Three basic properties of equilibrium in general have been proposed by [[Huw Dixon]],<ref>Dixon, H. Equilibrium and Explanation, in Creedy (ed) The Foundations of Economic Thought, Blackwells, 1990, chapter 13, pp.356-394. (reprinted in Surfing Economics).</ref> These are:
| |
| | |
| Equilibrium property P1: The behavior of agents is consistent.
| |
| | |
| Equilibrium property P2: No agent has an incentive to change its behavior.
| |
| | |
| Equilibrium Property P3: Equilibrium is the outcome of some dynamic process (stability).
| |
| | |
| ===Example: The competitive equilibrium.===
| |
| | |
| [[File:Price of market balance.gif|thumb|Price of market balance:
| |
| {{unordered list
| |
| | P – price
| |
| | Q – quantity demanded and supplied
| |
| | S – supply curve
| |
| | D – demand curve
| |
| | P<sub>0</sub> – equilibrium price
| |
| | A – excess demand – when P<P<sub>0</sub>
| |
| | B – excess supply – when P>P<sub>0</sub>
| |
| }}]]
| |
| | |
| In a competitive equilibrium, supply equals demand. Property P1 is satisfied, because at the equilibrium price the amount supplied is equal to the amount demanded. Property P2 is also satisfied. Demand is chosen to maximize utility given the market price: no one on the demand side has any incentive to demand more or less at the prevailing price. Likewise supply is determined by firms maximizing their profits at the market price: no firm will want to supply any more or less at the equilibrium price. Hence, agents on neither the demand side nor the supply side will have any incentive to alter their actions.
| |
| | |
| To see whether Property P3 is satisfied, consider what happens when the price is above the equilibrium. In this case there is an excess supply, with the quantity supplied exceeding that demanded. This will tend to put downward pressure on the price to make it return to equilibrium. Likewise where the price is below the equilibrium point there is a shortage in supply leading to an increase in prices back to equilibrium. Not all equilibria are "stable" in the sense of Equilibrium property P3. It is possible to have competitive equilibria that are unstable. However, if an equilibrium is unstable, it raises the question of how you might get there. Even if it satisfies properties P1 and P2, the absence of P3 means that the market can only be in the unstable equilibrium if it starts off there.
| |
| | |
| In most simple microeconomic stories of supply and demand a '''static equilibrium''' is observed in a market; however, economic equilibrium can be also [[Dynamic equilibrium|dynamic]]. Equilibrium may also be economy-wide or [[general equilibrium|general]], as opposed to the [[partial equilibrium]] of a single market. Equilibrium can change if there is a change in demand or supply conditions. For example, an increase in supply will disrupt the equilibrium, leading to lower prices. Eventually, a new equilibrium will be attained in most markets. Then, there will be no change in price or the amount of output bought and sold — until there is an [[exogenous]] shift in supply or demand (such as changes in [[technology]] or [[preference|tastes]]). That is, there are no [[endogenous]] forces leading to the price or the quantity.
| |
| | |
| ===Example: Nash equilibrium===
| |
| {{Details3|[[Nash equilibrium]] and [[Cournot model]]}}
| |
| [[Image:Economics cournot diag4 svg.svg|thumb|275 px|Equilibrium quantities as a solution to two reaction functions in Cournot duopoly. Firm 1's reaction function q1=R1(q2) gives its optimal output q1 to a given output q2 of firm 2. Likewise, firm 2's reaction function q2=R2(q1). The ''Cournot-Nash equilibrium'' occurs where the two reaction functions intersect and both firms are choosing the optimal output given the output of the other firm.]]
| |
| | |
| The Nash equilibrium is widely used in economics as the main alternative to competitive equilibrium. It is used whenever there is a strategic element to the behavior of agents and the "price taking" assumption of competitive equilibrium is inappropriate. The first use of the Nash equilibrium was in the [[Cournot model|Cournot duopoly]] as developed by [[Antoine Augustin Cournot]] in his 1838 book.<ref>Augustin Cournot (1838), Theorie mathematique de la richesse sociale and of recherches sur les principles mathematiques de la theorie des richesses, Paris</ref> Both firms produce a homogenous product: given the total amount supplied by the two firms, the (single) industry price is determined using the demand curve. This determines the revenues of each firm (the industry price times the quantity supplied by the firm). The profit of each firm is then this revenue minus the cost of producing the output. Clearly, there is a ''strategic interdependence'' between the two firms. If one firm varies its output, this will in turn affect the market price and so the revenue and profits of the other firm. We can define the payoff function which gives the profit of each firm as a function of the two outputs chosen by the firms. Cournot assumed that each firm chooses its own output to maximize its profits given the output of the other firm. The Nash equilibrium occurs when both firms are producing the outputs which maximize their own profit given the output of the other firm.
| |
| | |
| In terms of the equilibrium properties, we can see that P2 is satisfied: in a Nash equilibrium, neither firm has an incentive to deviate from the Nash equilibrium given the output of the other firm. P1 is satisfied since the payoff function ensures that the market price is consistent with the outputs supplied and that each firms profits equal revenue minus cost at this output.
| |
| | |
| Is the equilibrium stable as required by P3? Cournot himself argued that it was stable using the stability concept implied by [[Best response| best response dynamics]]. The reaction function for each firm gives the output which maximizes profits (best response) in terms of output for a firm in terms of a given output of the other firm. In the standard Cournot model this is downward sloping: if the other firm produces a higher output, your best response involves producing less. Best response dynamics involves firms starting from some arbitrary position and then adjusting output to their best-response to the previous output of the other firm. So long as the reaction functions have a slope of less than -1, this will converge to the Nash equilibrium. However, this stability story is open to much criticism. As Dixon argues: "''The crucial weakness is that, at each step, the firms behave myopically: they choose their output to maximize their current profits given the output of the other firm, but ignore the fact that the process specifies that the other firm will adjust its output''...".<ref>Dixon (1990), page 369.</ref> There are other concepts of stability that have been put forward for the Nash equilibrium, [[Evolutionarily stable strategy|evolutionary stability]] for example.
| |
| | |
| ==Normative Evaluation==
| |
| | |
| Most economists e.g., [[Paul Samuelson]]<ref>Paul A. Samuelson (1947; Expanded ed. 1983), ''[[Foundations of Economic Analysis]]'', Harvard University Press. ISBN 0-674-31301-1</ref>{{rp|Ch.3,p.52}} caution against attaching a [[Normative economics|normative]] meaning (value judgement) to the equilibrium price. For example, food markets may be in equilibrium at the same time that people are starving (because they cannot afford to pay the high equilibrium price). Indeed, this occurred during the [[Great Famine (Ireland)|Great Famine]] in [[Ireland]] in 1845–52, where [[Great Famine (Ireland)#Food exports to England|food was exported]] though people were starving, due to the greater profits in selling to the English – the equilibrium price of the Irish-British market for potatoes was above the price that Irish farmers could afford, and thus (among other reasons) they starved.<ref>See citations at [[Great Famine (Ireland)#Food exports to England|Great Famine (Ireland): Food exports to England]], including Cecil Woodham-Smith ''The Great Hunger; Ireland 1845–1849,'' and Christine Kinealy, 'Irish Famine: This Great Calamity'' and ''A Death-Dealing Famine'</ref>
| |
| | |
| == Interpretations ==
| |
| In most interpretations, [[Classical economics|classical economists]] such as [[Adam Smith]] maintained that the [[free market]] would tend towards economic equilibrium through the [[price mechanism]]. That is, any excess supply (market surplus or glut) would lead to ''price cuts'', which decrease the quantity supplied (by reducing the incentive to produce and sell the product) and increase the quantity demanded (by offering consumers bargains), automatically abolishing the glut. Similarly, in an unfettered market, any excess demand (or shortage) would lead to ''price increases'', reducing the quantity demanded (as customers are priced out of the market) and increasing in the quantity supplied (as the incentive to produce and sell a product rises). As before, the disequilibrium (here, the shortage) disappears. This automatic abolition of
| |
| [[market clearing|non-market-clearing]] situations distinguishes markets from [[central planning]] schemes, which often have a difficult time getting prices right and suffer from persistent shortages of goods and services.<ref name="Smith">Smith, Adam (1776), [http://www2.hn.psu.edu/faculty/jmanis/adam-smith/Wealth-Nations.pdf Wealth of Nations], Penn State Electronic Classics edition, republished 2005, Chapter 7: p.51-58</ref>
| |
| | |
| This view came under attack from at least two viewpoints. Modern [[mainstream economics]] points to cases where equilibrium does not correspond to market clearing (but instead to [[unemployment]]), as with the [[efficiency wage hypothesis]] in [[labor economics]]. In some ways parallel is the phenomenon of [[credit rationing]], in which banks hold interest rates low to create an excess demand for loans, so they can pick and choose whom to lend to. Further, economic equilibrium can correspond with [[monopoly]], where the monopolistic firm maintains an artificial shortage to prop up prices and to maximize profits. Finally, [[Keynesian economics|Keynesian macroeconomics]] points to [[underemployment|underemployment equilibrium]], where a surplus of labor (i.e., [[unemployment#Cyclical_unemployment|cyclical unemployment]]) co-exists for a long time with a shortage of [[aggregate demand]].
| |
| | |
| On the other hand, the [[Austrian School]] and [[Joseph Schumpeter]] maintained that in the short term equilibrium is never attained as everyone was always trying to take advantage of the pricing system and so there was always some [[dynamical system|dynamism]] in the system. The free market's strength was not creating a [[static equilibrium|static]] or a [[general equilibrium]] but instead in organising resources to meet individual desires and ''discovering'' the best methods to carry the economy forward.
| |
| | |
| ==Solving for the competitive equilibrium price==
| |
| To solve for the equilibrium price, one must either plot the supply and demand curves, or solve for their equations being equal.
| |
| | |
| An example may be:
| |
| | |
| <math>
| |
| \begin{alignat}{2}
| |
| Q_s & = 124 + 1.5 \cdot P \\
| |
| Q_d & = 189 - 2.25 \cdot P \\
| |
| \\
| |
| Q_s & = Q_d \\
| |
| \\
| |
| 124 + 1.5 \cdot P & = 189 - 2.25 \cdot P \\
| |
| (1.5 + 2.25) \cdot P & = (189 - 124) \\
| |
| P & = \frac{189 - 124}{1.5 + 2.25} \\
| |
| P & = \frac{65}{3.75} \\
| |
| P & = 17.33 \\
| |
| \end{alignat}
| |
| </math>
| |
| | |
| [[Image:Simple supply and demand.svg|250px|right]]
| |
| In the diagram, depicting simple set of supply and demand curves, the quantity demanded and supplied at price '''P''' are equal.
| |
| | |
| At any price above '''P''' supply exceeds demand, while at a price below '''P''' the quantity demanded exceeds that supplied. In other words, prices where demand and supply are out of balance are termed points of disequilibrium, creating shortages and oversupply. Changes in the conditions of demand or supply will shift the demand or supply curves. This will cause changes in the equilibrium price and quantity in the market.
| |
| | |
| Consider the following demand and supply schedule:
| |
| | |
| {| class="wikitable"
| |
| ! Price ($) !! Demand !! Supply
| |
| |-
| |
| | align="right" | 8.00 || align="right" | 6,000 || align="right" | 18,000
| |
| |-
| |
| | align="right" | 7.00 || align="right" | 8,000 || align="right" | 16,000
| |
| |-
| |
| | align="right" | 6.00 || align="right" | 10,000 || align="right" | 14,000
| |
| |-
| |
| | align="right" | 5.00 || align="right" | 12,000 || align="right" | 12,000
| |
| |-
| |
| | align="right" | 4.00 || align="right" | 14,000 || align="right" | 10,000
| |
| |-
| |
| | align="right" | 3.00 || align="right" | 16,000 || align="right" | 8,000
| |
| |-
| |
| | align="right" | 2.00 || align="right" | 18,000 || align="right" | 6,000
| |
| |-
| |
| | align="right" | 1.00 || align="right" | 20,000 || align="right" | 4,000
| |
| |}
| |
| | |
| * The equilibrium price in the market is $5.00 where demand and supply are equal at 12,000 units
| |
| | |
| * If the current market price was $3.00 – there would be excess demand for 8,000 units, creating a shortage.
| |
| | |
| * If the current market price was $8.00 – there would be excess supply of 12,000 units.
| |
| | |
| When there is a shortage in the market we see that, to correct this disequilibrium, the price of the good will be increased back to a price of $5.00, thus lessening the quantity demanded and increasing the quantity supplied thus that the market is in balance.
| |
| | |
| When there is an oversupply of a good, such as when price is above $6.00, then we see that producers will decrease the price to increase the quantity demanded for the good, thus eliminating the excess and taking the market back to equilibrium.
| |
| | |
| ===Influences changing price===
| |
| A change in equilibrium price may occur through a change in either the supply or demand schedules. For instance, starting from the above supply-demand configuration, an increased level of [[disposable income]] may produce a new demand schedule, such as the following:
| |
| | |
| {| class="wikitable"
| |
| ! Price ($) !! Demand !! Supply
| |
| |-
| |
| | align="right" | 8.00 || align="right" | 10,000 || align="right" | 18,000
| |
| |-
| |
| | align="right" | 7.00 || align="right" | 12,000 || align="right" | 16,000
| |
| |-
| |
| | align="right" | 6.00 || align="right" | 14,000 || align="right" | 14,000
| |
| |-
| |
| | align="right" | 5.00 || align="right" | 16,000 || align="right" | 12,000
| |
| |-
| |
| | align="right" | 4.00 || align="right" | 18,000 || align="right" | 10,000
| |
| |-
| |
| | align="right" | 3.00 || align="right" | 20,000 || align="right" | 8,000
| |
| |-
| |
| | align="right" | 2.00 || align="right" | 22,000 || align="right" | 6,000
| |
| |-
| |
| | align="right" | 1.00 || align="right" | 24,000 || align="right" | 4,000
| |
| |}
| |
| | |
| Here we see that an increase in disposable income would increase the quantity demanded of the good by 4,000 units at each price. This increase in demand would have the effect of shifting the demand curve rightward. The result is a change in the price at which quantity supplied equals quantity demanded. In this case we see that the two now equal each other at an increased price of $6.00. Note that a decrease in disposable income would have the exact opposite effect on the market equilibrium .
| |
| | |
| We will also see similar behaviour in price when there is a change in the supply schedule, occurring through technological changes, or through changes in business costs. An increase in technological usage or know-how or a decrease in costs would have the effect of increasing the quantity supplied at each price, thus reducing the equilibrium price. On the other hand, a decrease in technology or increase in business costs will decrease the quantity supplied at each price, thus increasing equilibrium price.
| |
| | |
| The process of comparing two static equilibria to each other, as in the above example, is known as [[comparative statics]]. For example, since a rise in consumers' income leads to a higher price (and a decline in consumers' income leads to a fall in the price — in each case the two things change in the same direction), we say that the comparative static effect of consumer income on the price is positive. This is another way of saying that the [[total derivative]] of price with respect to consumer income is greater than zero. | |
| | |
| ==Dynamic equilibrium==
| |
| | |
| Whereas in a static equilibrium all quantities have unchanging values, in a dynamic equilibrium various quantities may all be growing at the same rate, leaving their ratios unchanging. For example, in the [[Exogenous growth model|neoclassical growth model]], the working population is growing at a rate which is exogenous (determined outside the model, by non-economic forces). In dynamic equilibrium, output and the [[physical capital]] stock also grow at that same rate, with [[Gross domestic product|output]] per worker and the capital stock per worker unchanging. Similarly, in models of [[inflation]]<ref>Turnovsky, Stephen J. (2000), ''Methods of Macroeconomic Dynamics'', MIT Press. ISBN 0-262-20123-2</ref> a dynamic equilibrium would involve the [[price level]], the nominal [[money supply]], nominal [[Wage|wage rates]], and all other [[Real versus nominal value (economics)|nominal values]] growing at a single common rate, while all [[Real versus nominal value (economics)|real values]] are unchanging, as is the [[inflation rate]].
| |
| | |
| The process of comparing two dynamic equilibria to each other is known as '''comparative dynamics'''. For example, in the neoclassical growth model, starting from one dynamic equilibrium based in part on one particular saving rate, a permanent increase in the saving rate leads to a new dynamic equilibrium in which there are permanently higher capital per worker and productivity per worker, but an unchanged growth rate of output; so it is said that in this model the comparative dynamic effect of the saving rate on capital per worker is positive but the comparative dynamic effect of the saving rate on the output growth rate is zero.
| |
| | |
| ==See also==
| |
| | |
| *[[Competitive equilibrium]]
| |
| *[[General equilibrium theory]]
| |
| *[[Partial equilibrium]]
| |
| *[[Nash equilibrium]]
| |
| *[[Labor theory of value]]
| |
| *[[Price]]
| |
| *[[Exchange value]]
| |
| *[[Supply and demand]]
| |
| *[[Microeconomics]]
| |
| *[[Real prices and ideal prices]]
| |
| *[[Prices of production]]
| |
| *[[Law of value]]
| |
| | |
| ==References==
| |
| {{Reflist}}
| |
| | |
| ==External links==
| |
| * [http://huwdixon.org/SurfingEconomics/chapter2.pdf Equilibrium and Explanation], chapter 2 of [http://huwdixon.org/SurfingEconomics/index.html Surfing Economics] by [[Huw Dixon]]
| |
| | |
| {{microeconomics}}
| |
| | |
| {{DEFAULTSORT:Economic Equilibrium}}
| |
| [[Category:Pricing]]
| |
| [[Category:Markets (customer bases)]]
| |
Taking certain diet plans to lose weight is not convenient. Some are lucrative but several are failed. While along the means of dieting, we have to sacrifice for the new we thus we will feel deprived. However, permanent weight reduction plus healthy body without suffering will be achieved that is something I would like to share with we here.
Low carb diet has moreover proved to be amidst the diets fast for women. It involves low fat vegetables that are nonetheless wealthy inside minerals and vitamins.
One may not have to go to the gym or the spa or any fitness center plus spend much simply to slim down to obtain that longed for sexy body. There are many books obtainable in the bookstore which offer fat reduction programs that are advantageous and for free, of course the books are not though. These weight loss programs, or diet plans are gaining huge popularity with thus much publicity, reviews plus critiques which one may be confused which precisely to follow. So before choosing that weight loss plan to follow, try reading these summaries regarding the most popular diet programs out now.
If you have to lose fat quickly (like 48 hours), this diet will interest we. For 48 hours all you're permitted to consume is a specialized fruit juice. It is supposed to have all which the body demands for which time. Many people have reported noticeable weight reduction in those 48 hours. The question is, what arises inside the upcoming 48?
The calories which are needed by the human body are about 1200 calories a day. In fact, rather of any of the diets to lose weight quickly, I would suggest that you take the menu 1200 calorie diet. This type of diet plan involves a perfect measure of the recommended calories a day and also includes a balance of nutrition. The balance of nutrition means that 75% of the diet involves foods conveniently digested plus 25% involves foods which are not, and are intended to be stored. These foods are stored as fat, some kinds of proteins and carbohydrates, whenever consumed inside excessive amounts (over 25%) lead to problems such as overweight and obesity.
A fantastic approach to do healthy weight reduction success is to join all types of diet food into healthy eating plans, taking advantage of the benefits of every ingredient. Capsaicin is combined with caffeine, green tea, plus cinnamon to give a moderate plus sensible increase in calories burned every day. The role of capsaicin is to stimulate the sympathetic nervous system. This ingredient offers only the positive and healthy effects.
So, a 3-day diet should not be done regularly to avoid getting into the yoyo effect. And many incredibly, this diet is certainly no for everybody as it is very a difficult slimming system.