Equilibirium is it really the most desired point ?

Discussion in 'Economics' started by jetmacrotrader, Sep 27, 2009.

  1. I'am Trying to understand the concept of equilibilium, i might be wrong in my concepts please feel free to correct me. I just want to know anyone opinion on this.

    Is the point of Equilibrium really the most desired point in a market ? In reality to me the most optimal point should be when markets are above equilibrium, where firms can have the profitability to expand and hire employees. Do the mathametics really prove that equilibrium should be the most desired point. It seems to when in robust growth it should be above this. ?

    So in the 90's of robust growth were we ever in a point of equilibrium, or for that matter whenever in expansion have we ever been in a point of equilibrium for a long period of time ?
  2. Increased demand shifted demand schedule to the right causing new/higher equilibrium points and market prices. Equilibrium is not a static point. It moves around as the s&d equation changes. Increased demand during the 90's was due to rising incomes, increasing risk appetites and foreing capital investment in US equities. It kept bumping the demand curve to the right at a faster pace than many companies offered more shares or splits (supply increases).
  3. kxvid


    The 90s was a tech fueled productivity boom. There was a tremendous demand and supply for technological goods and services, reaching ever higher equilibrium points. Towards the end of the decade a speculative bubble formed in tech stocks. It popped just as demand for tech was peaking causing a mild recession. The market was oversupplied at that point.

    The market always tends toward equilibrium. If there is oversupply companies go bankrupt and supply normalizes. If there is a undersupply new companies are formed to fill the demand. Throughout the 90s supply was growing to keep pace with demand. For other industries demand was also increasing, but supply was generally also going higher due to increased productivity.

    The economy as a whole can go out of equilibrium. If demand is outstripping supply inflation occurs. If supply is outstripping demand deflation occurs. Central banks try not to let either of these events happen through use of monetary policy.
  4. No, it is not the most desired point in a market. I think your question arises from mixing desires with laws of economics. Market agents come from different angles and do not desire equilibrium. Manufacturers want to produce more, charge higher prices and make more money forever. Consumers want to buy more at lower prices and spend less for the same goods forever. Stockhoolders demand for higher dividents forever and company management wants to invest more of the profits in growth.

    So everyone constantly pushes for a diferent equilibrium to their benefit but the laws of economics keep the balance. Until the goverment gets involved and messes it all up by giving money away for free to those who screwed the economy by enforcing their own desires using dirty tricks.
  5. intraday bill has it mostly right...

    Equilibrium is experienced everytime someone buys/sells.

    you can't not have equilibrium. Sort of rediculous question, n/o.

    A better question would be, do businesses/consumers prefer equilibrium to shift one way or another?