R/e-cycling in modern Territories
What is an economic equilibrium?Those of you unlucky enough to have suffered the privilege of studying economics 101, will recall our fixation with something we call equilibrium. Why is equilibrium such a central concept in economics? The simple answer is that, without it, we economists stand no chance of explaining anything, let alone predicting (prices, quantities, etc.).The idea of an equilibrium sprang up, like most scientific ideas, from physics. Suppose that you see a rock rolling down a mountain. Can you predict its path? Or, equivalently, can you predict its final resting point? If you can, then you have a pretty decent idea of its actual path. Well, this ‘resting point’ is what we mean by equilibrium: the point at which some ‘system’ will reach a resting place; a place in which there will be no tendency to carry on ‘moving’. Back to economics, suppose that we are witnessing the price of oil increasing, after (say) a period of relative stability. Will it stop at some level? Which level will that be? In other words, will it reach a new equilibrium, and if so what is the equilibrium price?To complicate things a little, both in Nature and in some economy, an equilibrium can be either static or dynamic. A static equilibrium means no change. The ‘system’ under study is in complete standstill. Like the rock that stopped rolling. A dynamic equilibrium, by contrast, entails movement but of the sort that is eminently predictable, periodic. For example, the Earth’s orbit around the Sun (while neither the Earth or the Sun are stationary, the Earth’s orbit is). Or the demand for toys which, predictably, peaks before Christmas, every Christmas.
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