EQUILIBRIUM IN ECONOMICS

Equilibrium in Economics



S.No
Concept
Conditions
Explanation
1
Consumers Equilibrium
Single commodity

MUx =price
If  MUx > Px  consumer is in gains, he will increase consumption.

    MUx < Py   consumer is in loss, he will reduce consumption
2
Consumers Equilibrium


Two commodity (utility analysis)
MUX/Px= MUy/Py
If MUX/Px >  MUy/Py   - utility per rupee from Goodx is more than utility per rupee of Goody. So consumption of Goodx is increased and consumption of Goody is reduced..

MUX/Px <  MUy/Py utility per rupee from Goodx is less than utility per rupee of Goody. So consumption of Goodx is reduced and consumption of Goody is increased.

3
Consumers Equilibrium


Indifference curve approach
MRSxy =Px/Py
If MRSxy > Px/Py  - Consumer is willing to give up more but he has to give up less amount of other good.

MRSxy  < Px/Py  - Consumer is willing to give up less but he has to give up more amount of other good.
4
Producers Equilibrium
MC = MR
MC Must rise after intersecting MR
MC > MR adding more to cost. Profits are not maximum.

MC

5
Market Equilibrium
Quantity demanded equals to quantity supplied.
Qd > Qs     Excess Demand

Qd < Qs     Excess Supply
6
Equilibrium level of income ,output and employment
AS  =  AD
C+S = C+I

AS > AD unwanted unsold stock of goods. So output and employment is reduced.

AS < AD Reduction in stock with firm. So firms will increase output by increasing employment
7
Equilibrium level of income ,output and employment

S  =  I
S > I people are saving more and consuming less. Unwanted unsold stock of goods. So output and employment is reduced. Income will fall and saving will fall.

S < I people are saving less consuming more. Reduction in stock with firm. So firms will increase output by increasing employment. Income will increase savings will increase.

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