EconGuru Economics Guide » Equilibrium

Equilibrium

Equilibrium is a very important concept of science which dictates a state of balance therein 2 or more variables come to a dynamic standstill. In economics, equilibrium is used to describe the market supply and demand balance in which consequently, prices become relatively stable, under certain circumstances.

Economic equilibrium is addressed when no participants have the incentives to change their preferences or choices. Famous and widely adopted equilibrium theories in economics include competitive market equilibrium theory and strategic equilibrium theory in game theory.

Real world hosts no actual equilibrium, wherein supply and demand are never exactly equal, equilibrium is just approximated. But it comes very handy in analyzing market movements.