Economic Equilibrium


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.

BREAKING DOWN '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.

  1. Equilibrium

    The state in which market supply and demand balance each other ...
  2. Windfall Profits

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

    A theory explaining the interaction between the supply of a resource ...
  4. Quantity Demanded

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

    A situation where internal and/or external forces prevent market ...
  6. Price Elasticity Of Demand

    A measure of the relationship between a change in the quantity ...
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