Economic Equilibrium

AAA

DEFINITION of 'Economic Equilibrium '

A condition or state in which economic forces are balanced. These economic variables will be unchanged from their equilibrium values in the absence of external influences. Economic equilibrium may also be defined as the point where supply equals demand for a product – the equilibrium price is where the hypothetical supply and demand curves intersect.




The term 'economic equilibrium' can also be applied to any number of variables, such as the interest rate that allows for the greatest growth of the banking and non-financial sector.






INVESTOPEDIA EXPLAINS 'Economic Equilibrium '

Economic equilibrium can be static or dynamic and may exist in a single market or multiple markets. It can be disrupted by exogenous factors, such as a change in consumer preferences, which can lead to a drop in demand and consequently a condition of oversupply in the market. In this case, a temporary state of disequilibrium will prevail until a new equilibrium price or level is established, at which point the market will revert back to economic equilibrium.

RELATED TERMS
  1. Windfall Profits

    Huge profits that occur unexpectedly due to fortuitous circumstances. ...
  2. Law Of Supply And Demand

    A theory explaining the interaction between the supply of a resource ...
  3. Disequilibrium

    A situation where internal and/or external forces prevent market ...
  4. Quantity Demanded

    A term used in economics to describe the total amount of goods ...
  5. Equilibrium

    The state in which market supply and demand balance each other ...
  6. Price Elasticity Of Demand

    A measure of the relationship between a change in the quantity ...
Related Articles
  1. A Practical Look At Microeconomics
    Economics

    A Practical Look At Microeconomics

  2. Ebola's Economic Impacts on Liberia, ...
    Economics

    Ebola's Economic Impacts on Liberia, ...

  3. Using Normal Distribution Formula To ...
    Investing Basics

    Using Normal Distribution Formula To ...

  4. The Government And Risk: A Love-Hate ...
    Insurance

    The Government And Risk: A Love-Hate ...

comments powered by Disqus
Hot Definitions
  1. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  2. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  3. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  4. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  5. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  6. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
Trading Center