<p>The concept of equilibrium can be easily misunderstood by non-scientists and non-economists. Following <a href="https://www.palgrave.com/gp/book/9780230249325" rel="nofollow noreferrer">Robinson (1956: 57)</a> who I think explains this well:</p>
<blockquote>
<p>The word equilibrium, in ordinary speech, describes a relation between bodies in space. The scales of a balance are in equilibrium when the balance is at rest. . . . If we are continually throwing coppers at random into either scale, the balance is continually wobbling and never reaches equilibrium; but, at any moment, there is a definite equilibrium position which it would quickly reach if, from that moment, we left it alone.</p>
</blockquote>
<p>Hence, equilibrium can be thought of as a some sort of center of mass. If the center of mass would stay stable eventually price at which supply equals demand would be reached, the same way as planets in solar system will eventually find some stable orbits as predicted by Newton laws (or more appropriately general relativity).</p>
<p>However, continuing the analogy, if you always disturb solar system (by letting some black holes or rouge stars constantly pass by) then you will constantly be disturbing orbits of planets and they will never reach the orbit predicted using Newtonian/GR mechanics.</p>
<p>However, while our solar system (praise Gilgamesh!) is not constantly perturbed <em>significantly</em> by some massive objects that pass by, the economic equilibrium is constantly being perturbed by shocks to demand (due to shocks to tastes, preferences, peoples incomes etc) and supply (due to shocks to technology etc).</p>
<p>Consequently, in real life economy, especially in a dynamic one, economy might never truly be in an equilibrium predicted by static supply demand model (although one can extend the concept to dynamic scenarios as well and talk about equilibrium paths and so on). The usefulness of supply demand models is to explain where the new 'center of mass' will be which allows us to understand mechanisms of how prices and quantities move, the same way as Newtonian mechanics does not loose all its utility when we deal with physical dynamic systems (even if solar system would be constantly perturbed it would be useful to know at each point in time how it is going to settle, all else assumed equal).</p>

CC BY-SA 4.0
2021-05-17T21:45:52.460Z
2021-05-17T21:51:01.827Z
2021-05-17T21:51:01.827Z
1muflon1
<p>I am confused over the concept of market equilbriums.</p>
<p>let's say there is a firm X, who supplies 100 units in 1 week and the market demand is also 100 units, then Supply = Demand, and resources are perfectly allocated. But how realistic is this scenario, in real life, usually not everything is sold whatever is produced by the firms, like realistically, probabably like 85-95 units are sold, and the remaining not sold are scrapped. And if that happens for every single firm in the market, that means market demand actually isn't equal to market supply, hence this would be evident in every market, hence aggregate demand won't equal aggregate supply. So why in the economic theory, we talk about Supply equals demand, when realistically, for every firm everything won't be sold whatever is produced.</p>

CC BY-SA 4.0
2021-05-17T18:49:48.590Z
Equilibrium is a long-run concept. Equilibrium relates to the fact that prices will conduct efficient resource allocation (S=D) if allowed to freely adjust. However, the concept of equilibrium is mostly useful for closing a mathematical model based on certain behavioural assumptions; it should not be taken to mean that always and everywhere that market produces no waste.
EB3112
CC BY-SA 4.0
2021-05-17T21:31:54.750Z
@EB3112 Please post answers as answers!
Giskard
CC BY-SA 4.0
2021-05-18T13:22:42.317Z
Was simply a comment, rather than a complete answer.
EB3112
<competitive-equilibrium>
free market equilbrium point, S=D confusion
Adam
# free market equilbrium point, S=D confusion

(Asked by: username_0 on 2021-05-17)

I am confused over the concept of market equilbriums.

let's say there is a firm X, who supplies 100 units in 1 week and the market demand is also 100 units, then Supply = Demand, and resources are perfectly allocated. But how realistic is this scenario, in real life, usually not everything is sold whatever is produced by the firms, like realistically, probabably like 85-95 units are sold, and the remaining not sold are scrapped. And if that happens for every single firm in the market, that means market demand actually isn't equal to market supply, hence this would be evident in every market, hence aggregate demand won't equal aggregate supply. So why in the economic theory, we talk about Supply equals demand, when realistically, for every firm everything won't be sold whatever is produced.

**Tags:** competitive-equilibrium

> **Comments:**
> **username_1**: Equilibrium is a long-run concept. Equilibrium relates to the fact that prices will conduct efficient resource allocation (S=D) if allowed to freely adjust. However, the concept of equilibrium is mostly useful for closing a mathematical model based on certain behavioural assumptions; it should not be taken to mean that always and everywhere that market produces no waste.  
> **username_2**: @username_1 Please post answers as answers!  
> **username_1**: Was simply a comment, rather than a complete answer.  

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## 1 answers

### Answer by username_3 on 2021-05-17. Score: -1

The concept of equilibrium can be easily misunderstood by non-scientists and non-economists. Following [Robinson (1956: 57)](https://www.palgrave.com/gp/book/9780230249325) who I think explains this well:

> The word equilibrium, in ordinary speech, describes a relation between bodies in space. The scales of a balance are in equilibrium when the balance is at rest. . . . If we are continually throwing coppers at random into either scale, the balance is continually wobbling and never reaches equilibrium; but, at any moment, there is a definite equilibrium position which it would quickly reach if, from that moment, we left it alone.

Hence, equilibrium can be thought of as a some sort of center of mass. If the center of mass would stay stable eventually price at which supply equals demand would be reached, the same way as planets in solar system will eventually find some stable orbits as predicted by Newton laws (or more appropriately general relativity).

However, continuing the analogy, if you always disturb solar system (by letting some black holes or rouge stars constantly pass by) then you will constantly be disturbing orbits of planets and they will never reach the orbit predicted using Newtonian/GR mechanics.

However, while our solar system (praise Gilgamesh!) is not constantly perturbed *significantly* by some massive objects that pass by, the economic equilibrium is constantly being perturbed by shocks to demand (due to shocks to tastes, preferences, peoples incomes etc) and supply (due to shocks to technology etc).

Consequently, in real life economy, especially in a dynamic one, economy might never truly be in an equilibrium predicted by static supply demand model (although one can extend the concept to dynamic scenarios as well and talk about equilibrium paths and so on). The usefulness of supply demand models is to explain where the new 'center of mass' will be which allows us to understand mechanisms of how prices and quantities move, the same way as Newtonian mechanics does not loose all its utility when we deal with physical dynamic systems (even if solar system would be constantly perturbed it would be useful to know at each point in time how it is going to settle, all else assumed equal).


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