Equilibria in Economics

Economic Assignment
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Table of Contents
Introduction........................................................................................................... 3
Analysis................................................................................................................. 3
Conclusion............................................................................................................. 7
Bibliography........................................................................................................... 8
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Introduction
Equilibrium means equal balance. It comes from two Latin words named ‘acqui’ (Equal) and
‘libra’ (Balance). Equilibrium is widely used in Physics referring to a state of balance.
Equilibrium is also used in Economics to a balance when two opposing forces do not
influence to change each other. When no further change is possible, we can say that the
Economy is in equilibrium.
Prof. Schumpeter stated three types of equilibrium, namely neutral, stable and unstable
equilibrium with an example of a ball in a billiard table. He referred that when a ball is
resting at the bottom of a bowl, it is in stable equilibrium. When a ball is resting on a billiard
table, it is in neutral equilibrium. And when a ball is perching on the top of the billiard table,
it is in unstable equilibrium.
An Economy is said to be stable when the disturbing factor can be adjusted by its own.
Marshall explained it further that when the demand price is equal to the supply price, the
amount has a tendency to be fixed. It is in equilibrium and this type of equilibrium is stated as
stable equilibrium because if the price is displaced a little, it has a tendency to get back to its
original position.
Stable Equilibrium
Analysis
Now we must know the aggregate expenditure of Australian economy to know whether it is
in equilibrium state or not. Aggregate expenditure is the current value of all the finished
goods and services in the said economy. The equation for aggregate expenditure is:
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