Types or Concepts of Equilibrium

Static Equilibrium

"According to Prof. Mehta". "Static equilibrium is that

equilibrium which maintains itself outside the period of
time under consideration ". It is state of bliss which every
individual firm, industry or factor wants to attain and
once reached, would not like to leave. Consumer is in
equilibrium when he gets maximum satisfaction from a
given expenditure on different goods and services.Any
move on this part to reallocate his expenditure among his
purchases will decrease rather than increase his total
satisfaction. A firm is in equilibrium when its profit is the
maximum and it has no incentive to expand or contract
its output. It is a position in which neither the adjusting
firms have any tendency to live nor for new firms to enter
the industry. In other words, an industry is in equilibrium
when all firms are earning only normal profits.
Static equilibrium is of three types:

1. Micro static.
2. Macro static and
3. Comparative static

Micro static:

An economic model refers to relationship among different

variables in which one variable appears in more than one
relationship. In the micro static models of price
determination,
supply
and
demand
relationship
determine price at a point of time which are also constant

through time. The given demand and supply functions

are

D= (P) ----- I

S= (P) ----II
Where,
D = demand
P = price
S = supply

The equation I shows that demand is inversely

proportional to price i.e. if price decrease the demand will
rise and if price increases, the demand will fall keeping
other things constant. On the other hand equation II
shows that supply is also the function of price i.e. if price
increase supply will rise and if price decrease supply will
fall, other things remaining constant.
From equations I and II
D=S ------III
The micro static relationship is illustrated with the help of
diagram.

The above diagram shows DD and SS the demand and

supply curves respectively. They intersect at point E
where quantities of demand and supplied equals to OQ at
price OP. This is static analysis of price determination, for
all variables such as quantity supplied, quantity
demanded and price refer to the same point or period of
time.
Generally, the economists are interested in the
equilibrium values of the variables which are attained as
a result of the adjustment of the given variables to each
other. That is why economic theory has sometimes been
called equilibrium analysis. Till recently, the whole price
theory in which we explain the determination of
equilibrium prices of the products and factors in different
market categories were mainly static analysis. The values
of the various variables such as demand, supply, and
price were taken to be relating to the same point or
period of time.

Macro-Static:

The concept of Macro-Static explains the static

equilibrium position of the economy. This concept is best
explained by Prof. Kurihara in these words: If the object
is to show a still picture of the economy as a whole, the
macro-static method is the appropriate technique.. This

technique is one of investigating the relations between

macro-variables in final position of equilibrium without
reference to the process of adjustment implicit in that
final position. Such a final position of equilibrium may be
shown by the equation Y = C + I
Where, Y = Total Income
C = Total consumption expenditure
I = Total Investment expenditure

In a static Keynesian model, the level of equilibrium is

determined by the interaction of aggregate supply
function and the aggregate demand function. In diagram
OZ shows aggregate supply function and C + I line
represents aggregate demand function. The line OZ and
C + I intersect at point E, which determines equilibrium
level of income at OY1. It simply shows a timeless identity
equation without any adjusting mechanism.

A Teachers
purpose is NOT to
Create Students in
his own image, but
to develop
students who can
create their own
image...
Happy Teachers
Day Sir Calicaran!!
God Bless You
Always!!