Microeconomics

Equilibrium

Equilibrium
At its simplest, however, we often find equilibrium at the intersection of two or more
lines. The explanation is this. Suppose line A represents the optimizing behavior of
one group of agents, and suppose line B represents the optimizing behavior of
another group of agents. Then, the intersection of lines A and B is the equilibrium
where both groups of agents are optimizing.

The classic example is supply and demand. The supply curve shows the quantity
supplied at a given price by profit-maximizing firms. The demand curve shows the
quantity demanded at a given price by utility-maximizing consumers. The
intersection of the supply curve and the demand curve is the point that maximizes
both profits and utility.

In Economics: The economic condition in which there is neither excess demand nor
excess supply in a market.

[From Latin aequilībrium,]

[From aequi- EQUI- + lībra pound]
[Equi+pound=balance]

Disequilibrium
A situation where internal and/or external forces prevent market equilibrium from
being reached or cause the market to fall out of balance. This can be a short-term
byproduct of a change in variable factors or a result of long-term structural
imbalances.
This theory was originally put forth by economist John Maynard Keynes. Many
modern economists have likened using the term "general disequilibrium" to describe
the state of the markets as we most often find them. Keynes noted that markets will
most often be in some form of disequilibrium - there are so many variable factors
that affect financial markets today that true equilibrium is more of an idea it
is helpful for creating working models, but lacks real-world alidation.

Excess supply
Excess supply occurs when, at a given time, the
equilibrium price of the market is less than the
price that the goods are supplied at. However,
excess supply cannot be maintained when a free
market operates. The price must be reduced to
the equilibrium price, at which time; there is no
longer excess supply.
The following graph illustrates excess supply.

Let us give an Example; Suppliers of bananas

are expecting bananas to sell at a price of 20 per
kilo at the market. They bring 10 tones of
 Microeconomics
Equilibrium

bananas to sell. In fact, the demand is high then the price is high due to this reason
suppliers try to sell the maximum bananas and maximize the profit this excess
supply show the disequilibrium.