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Unit-2: The Concept of Equilibrium

2.2 Static Equilibrium Notes

Equilibrium state, defined above, elaborates another goodness of equilibrium theory that is stability.
The motion has the power to make constant each other’s differentiate power. Noone needs to move
when reached in this condition. According to Prof. Mehta, “Static equilibrium is the equilibrium which
makes constant itself even after a period of time.” Every person, firm or company wants to take this
pleasure and nobody wants to leave this if gets this state. A consumer is in equilibrium state when he
gets maximum with his fixed amount on various things and services. The consumer feels displeasure if
he found himself in a condition where he needs to re-divide his total expenditure to buy things. A firm
is in equilibrium state when its profit touches its maximum level and it does not want to increase its
production. Profit will decrease if this condition is lost anyhow. Therefore, an industry is in equilibrium
state when it doesn’t want to change its production quantity or quality. In this state, present firms want
to leave the business and new firms do not want to enter in the market. In other words, any industry
relaxed in equilibrium state when all firms get normal profit. An employee factor is in equilibrium state
when he gets his maximum price and there is maximum demand. He neither decreases or increases his
service and doesn’t want to go for another job. His earning will affect if he will do so. Static equilibrium
is defined by Prof. Bolding in his words,“A ball rolling at a constant speed or better if we take example
of a forest where tree grows or get destroyd nothing made changes in the structure of a forest. Here we
can see equilibrium in a physical mode.” Static equilibrium is what depends upon fixed price, demand,
quantity and population.

Static equilibrium is the equilibrium, which remains after a period of time.

2.3 Dynamic Equilibrium

In dynamic equilibrium prices, quantities, income, demand, machinery and population always change.
So in a fixed time, there is non-equilibrium state in respect of equilibrium condition. If there is opposition
in the participants of market then it affects badly to the equilibrium state. If any participant is in non-
equilibrium mode then he can affect other participants too. These start a chain of reaction among all the
participants which equalize the thought of all the participants and developed a new equilibrium state.
As Prof. Mehta says, “After a fixed time, when equilibrium mode is over, then it is called Dynamic
Equilibrium.”
We go forward with our example. Suppose that if some people buy fish then it will increase the demand.
It will affect all the participants of the market. Sellers will increase the price and this will affect old
buyers. Market will be non-stable till the supply will not reach the level of demand. From here the
opposite power will get a new mode of equilibrium. Figure 2.2 shows this whole process with the help
of Cobweb Theorem. a is the primary equilibrium state from where problem starts. When demand
increased by D then price go on OP (= qb) but when the demand of fish increased in long period then
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the price comes down to point g, where Oq demand and supply occurs in a new equilibrium price OP
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(q g). This clarifies the Dynamic Equilibrium.
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