The document discusses the concept of economic equilibrium, which occurs when supply and demand are balanced, leading to maximum consumer satisfaction and producer profit. It defines market equilibrium as the established price where quantity demanded equals quantity supplied and highlights the dynamic nature of equilibrium, including various models and exceptions. Key characteristics include consistent agent behavior and a lack of incentive for change in equilibrium conditions.

1. EQUILIBRIUM
CONCEPTUAL FRAMEWORK
19/02/15

2. MEANING
 It is a state of maximum satisfaction from a consumption.
A producer will obtain the stage of equilibrium when he will get maximum
profit from his production.
 In economics, economic equilibrium is a state where economic forces such
as supply and demand are balanced and in the absence of external influences
the (equilibrium) values of economic variables will not change.
Equilibrium occurs at the point at which quantity demanded and quantity
supplied are equal. Market equilibrium in this case refers to a condition
where a market price is established through competition.
 This price is often called the competitive price or market clearing price and
will tend not to change unless demand or supply changes and the quantity is
called "competitive quantity" or market clearing quantity.

3. FEATURES
The behaviour of agents is consistent.
 No agent has an incentive to change its behaviour.
Equilibrium is the outcome of some dynamic process (stability).
NOTE: Agents here means the responsible factors

4. EQUILIBRIUM STAGE 1- competitive or static
stage

5. EQUILIBRIUM STAGE 2- Nash & Cournot
model
Q1
R2 (Q1)
E
q1
R1 (Q2)
q2 Q 2

6. EXCEPTIONS
It cannot take place at a high equilibrium price of commodities.
FMCG products, products of daily use.
Conditions of natural calamity like famine, flood, tsunami etc.
It is a stage which is usually not seen in daily life. As the
assumption of micro economics says ‘ other things being equal’.

7. EXAMPLE
Price ( Rs.) Demand (in units) Supply (in units)
800 6,000 18,000
700 8,000 16,000
600 10,000 14,000
500 12,000 12,000
400 14,000 10,000
300 16,000 8,000
200 18,000 6,000
100 20,000 4,000

8. GENERALISATIONS
The set of prices and allocation of resources to consumers from firms is
said to be in equilibrium when every firm set up the inputs used and
outputs produced at a set price to maximize profit (given the firms
technology is constant)
For each consumer the consumption bundle is maximal for the budget
set defined by the initial endowment (valued at the equilibrium prices)
and their share of the profits of the firms in the economy.
The total consumption of products by consumers is equal to initial
endowments plus the net output of firms.