Going by its definition, the term 'equilibrium' refers to a stable situation which results from all the forces in question being stable or canceling each other. Though the concept is used widely in various fields, it is most popular when it comes to economics and science. Simply put, the economic condition characterized by balanced economic forces and absence of external influences which have the ability to disrupt this balance is referred to as the condition of 'economic equilibrium'.
What is Economic Equilibrium?
As per the definition, economic equilibrium is a condition in which all the economic forces - as well as the external influences which determine the behavior of these forces, are balanced. With a great deal of difference in opinion as to which are these 'factors' which need to be balanced, the demand-supply relationship seems to be best bet when explaining what economic equilibrium is. In case of demand supply analysis, it is the point at which the quantity of goods and services demanded and the quantity which is supplied is same. In a demand and supply graphical representation, 'it' is the point wherein the demand curve and supply curve intersect each other. Even though it is defined in context of the world in most of the cases, it can be restricted to certain geographical location or a particular industry. In other word, economic equilibrium can be a static or dynamic concept which can exist in single market as well as multiple markets of the world.
Economic Equilibrium: A Win-win Situation
The condition of equilibrium in economics is typically characterized by efficient allocation of goods and services - as the amount of goods supplied is same as the amount of goods in demand. This results in an ideal market situation, wherein the sellers and buyers - both are satisfied with the proceedings. While the sellers are satisfied with the fact that they are able to sell all the goods which have been produced, the buyers are satisfied with the fact that their demand is fulfilled. Further more, the sellers don't have to worry about the production in excess which has to be stored and assessed for taxes. At the same time, the consumer (buyer) has the option of opting for quality, instead of going by the cost factor - as the price for these goods and services is more or less similar in the competitive market.
Economic Disequilibrium
One has to also make a note of the fact that economic equilibrium can be affected by a number of factors in the marketplace. A disturbance in this equilibrium will be nothing but a disturbance in demand and supply of goods and services (more demand and less supply or vice versa.) This condition is referred to as disequilibrium in the field of economics. One of the most prominent exogenous factor which can disturb economic equilibrium is the consumer behavior. Simply put, any change in consumer taste can result in fall in the demand of goods and services - which, in turn, cane trigger oversupply of goods and disturb the characteristic balance of the equilibrium. Similarly, political shift in the country or countries is yet another exogenous factor which can result in disequilibrium in the economy.
As in case of economic equilibrium, even disequilibrium is not a constant phenomenon. The state of economic disequilibrium prevails until a new level of equilibrium is attained. When various exogenous factors contribute and cause disturbance in equilibrium, the economy undergoes some adjustments - which fill in for the new circumstances prevailing in the market. As the marketplace gets used to this adjustments, the period of disturbance comes to an end and a new period of stability - a new economic equilibrium begins.
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