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. Equilibrium

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

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

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

    A term used in economics to describe the total amount of goods ...
Related Articles
  1. A Practical Look At Microeconomics
    Economics

    A Practical Look At Microeconomics

  2. What is Globalization?
    Investing

    What is Globalization?

  3. Ever Wanted to Own International Stocks? ...
    Economics

    Ever Wanted to Own International Stocks? ...

  4. Hong Kong And China's Touchy Ties
    Investing

    Hong Kong And China's Touchy Ties

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center