EQUILIBRIUM

•The word equilibrium is very frequently used in

modern economic analysis.
•It means a state of balance.
•It refers to a state when a situation is ideal or
optimum so that no advantage can be obtained by
making a change.
•For eg. A consumer is said to be in an equilibrium
position when he is deriving maximum satisfaction
and a producer or a firm is said to be in equilibrium
position when it is making a maximum profit or
incurring a minimum loss.
 EQUILIBRIUM
•The term equilibrium indicates an ideal
condition or when complete adjustment has
been made to changes in an economic situation.
There is no incentive for any more change.
•TYPES OF EQUILIBRIUM:-
a. Stable E:-There is said to be a stable
equilibrium when the object, on which forces
are acting, after having been disturbed, tends to
resume its original position.
 EQUILIBRIUM
•2.Unstable E:- When a slight disturbance
evokes further disturbance, so that the original
position is never restored, it is a case of
unstable equilibrium.
•3.Neutral E:- On the other hand, when the
disturbing forces neither bring it back to the
original position not do they drive it further
away, it is called neutral E.
 EQUILIBRIUM
•4.Short term E:- In the case of short term
equilibrium, economic forces do not get
sufficient time to bring about complete
adjustment. Eg. Supply is adjusted to changes
in demand with the existing means of
production, for there is no time to increase
them or decrease them.
 EQUILIBRIUM
•5.Long term equilibrium :- In the case of long
term equilibrium, there is ample time to change
(increase or decrease) even the means of
production or the resources available. For eg. If
demand is increased, the supply will also be
increased not only with the existing plant and
machinery but also by installing new plants and
machinery and there is enough time for that
purpose.
 EQUILIBRIUM
•6. Partial E:- A partial or a particular
equilibrium relates to a single relation between
income, consumption, saving and investment.
•7.Consumer E:- consumer’s equilibrium
indicates that he is getting the maximum
aggregate satisfaction from a given expenditure
and in a given set of conditions relating to the
price and supply of a commodity.
 EQUILIBRIUM
•8. General Equilibrium :- Such an equilibrium
is not concerned with a single variable, but
with a multiplicity of variables. In general
equilibrium all the organizations working in the
economy affected. It is in short an equilibrium
of the entire economy.
•Particular E:- It covers a single organization
in the economic system.
 STATICS
Meaning :-
The term statics connotes a position of rest or
absence of movement. However economic
statics does not imply absence of movement,
rather it denotes a state in which there is a
continuous, regular, certain and constant
movement without change.
 STATICS
A static state is characterized by the absence of
five kinds of change: the size of population,
the supply of capital, the methods of
production, the forms of business organization
and the wants of the people; but all the same
the economy continues to work at a steady
pace.
 STATICS
According to Hicks, “statics studies stationary
situations which are devoid of any change and
which do not require any relation to the past or
future.”
Importance :-
• Though economic statics is mostly unrealistic
and unsuitable for most of the purpose yet it
enjoys the virtue of simplicity
 STATICS
Importance :-
• It is only through the method of economic statics
that we study how an individual allocates his
income on the purchase of various commodities to
maximize his satisfaction, how a producer combines
his inputs in an optimal way to maximize his profit,
and how the national product is distributed.
• The significance of economic statics lies in
penetrating the complex problems in a simple way.
 STATICS
Limitations :-
• The static analysis suffers from a few serious
shortcomings. It takes us far away from the
reality.
• It assumes variable data such as population
tastes, resources and techniques etc., to remain
constant. But the actual world is a dynamic
one where the data are continuously changing.
 DYNAMICS
• The word dynamics means causing to move.
In economics, dynamics refers to the study of
Economic change.
• The main purpose is to know as to how a complex of
current events will shape themselves in the future.
• Economic Dynamics is thus a process of change
through time. In dynamic economic analysis we
investigate the behaviour of the system which results
from the passage of time.
 DYNAMICS
• Significance of Economic Dynamics :-
It is more realistic and light-giving than
economic statics.
It takes us closer to reality. Here is no
assumption of other things remaining the
same.
It relates to a developing economy.
 DYNAMICS
• Limitations :-
Though dynamics is a more realistic method, it
is essentially very complex and only a few
economists equipped with the techniques of
advanced mathematics can make use of it.
 DYNAMICS
• Comparative Statics :-
In spite of its limitations, static analysis remains
useful, for this is a method whereby we can
ignore time as a variable and still make a
purposeful study of the economic system.
This is possible when we are finding out the
ultimate effect of a certain initial change and
ignore the process through which it is brought
about.
 DYNAMICS
• Comparative Statics :-
We just jump from one equilibrium position to another
without taking care of as to what happens in between
the 2 situations
Limitations :-
1.It cannot be used to tackle 2 types of problems
2.It fails to predict the path which the market follows
when moving from one equilibrium position to another.
3.It cannot predict whether or not a given equilibrium
position will ever be achieved.