what is equilibriumSolutionEquilibrium is the state in which

what is equilibrium

Solution

Equilibrium is the state in which market supply and demand balance each other and, as a result, prices become stable. Generally, when there is too much supply for goods or services, the price goes down, which results in higher demand. The balancing effect of supply and demand results in a state of equilibrium

The equilibrium price is where the supply of goods matches demand. When a major index experiences a period of consolidation or sideways momentum, it can be said that the forces of supply and demand are relatively equal and that the market is in a state of equilibrium.

As proposed by New Keynesian economist there are three properties to a state of equilibrium; the behavior of agents is consistent, no agent has an incentive to change its behavior, and that the equilibrium is the outcome of some dynamic process.