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Monday, 17 September 2018

Equilibrium: Meaning and Types


The word ‘equilibrium’ is often used in economic analysis. Today economics is sometime called as equilibrium analysis. Equilibrium means a situation of balance.

Types of Equilibrium

Stable Equilibrium. There is stable equilibrium when the object after being disturbed tends to resume its original position. In this case object come back in the old position.

Unstable Equilibrium. In this situation, original position is never restored. Objects assume new position once there is departure from the original position.

Neutral Equilibrium. In the case of neutral Equilibrium, the object assumes once for all a new position after the original position is disturbed.

Of these types, the stable equilibrium is the most commonly used in economics.

Stable equilibrium
Stable Equilibrium

Above figure shows stable equilibrium at the point P where MR and MC intersects each other. It means at point P , MR =MC. Equilibrium output is OM where profitß are maximum for the producer. If he increases output to OM2 or decreases to OM1, the size of his profit is reduced. Now forces automatically establish equilibrium at point P.

Unstable equilibrium
Unstable Equilibrium

Above figure is an example of unstable equilibrium where producer is maximising profits at point P. Now if he increases his output to OM1, his profit is maximised now at point P1. There is no tendency to return at Point P.

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