Economic Modelling and the Concept of Equilibrium

Abstract

There exist a number of definitions of the concept of economic equilibrium. One idea of equilibrium is that of a situation characterized by ‘offsetting forces’ — as, for example, when supply equals demand. A somewhat broader conception defines equilibrium as any state of rest which displays no endogenous tendencies to change over time.¹ There also exist a variety of model specific definitions of equilibrium. For example, in certain theories of the business cycle, equilibrium is characterized in terms of the way that individuals form conditional expectations.²