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In most simple microeconomic stories of supply and demand a static equilibrium is observed in a market; however, economic equilibrium can be also dynamic. Equilibrium may also be economy-wide or general, as opposed to the partial equilibrium of a single market. Equilibrium can change if there is a change in demand or supply conditions.
In figure 3, the income–consumption curve bends back on itself as with an increase income, the consumer demands more of X 2 and less of X 1. [3] The income–consumption curve in this case is negatively sloped and the income elasticity of demand will be negative. [4] Also the price effect for X 2 is positive, while it is negative for X 1. [3]
A-CEEI (and CEEI in general) is related, but not identical, to the concept of competitive equilibrium. Competitive equilibrium (CE) is a descriptive concept: it describes the situation in free market when the price stabilizes and the demand equals the supply. CEEI is a normative concept: it describes a rule for dividing commodities between people.
However, the price of a product is constant for every unit at the equilibrium price. The extra money someone would be willing to pay for the number units of a product less than the equilibrium quantity and at a higher price than the equilibrium price for each of these quantities is the benefit they receive from purchasing these quantities. [7]
Conversely, if income is greater than Y ', aggregate expenditure is less than aggregate income and firms will find that inventories are increasing. They will fire workers, and incomes will fall. Y ' is the only level of income at which there is no desire on the part of firms to change the number of people they employ.
Competitive equilibrium (also called: Walrasian equilibrium) is a concept of economic equilibrium, introduced by Kenneth Arrow and Gérard Debreu in 1951, [1] appropriate for the analysis of commodity markets with flexible prices and many traders, and serving as the benchmark of efficiency in economic analysis.
The money market equilibrium diagram. The LM curve shows the combinations of interest rates and levels of real income for which the money market is in equilibrium. It shows where money demand equals money supply. For the LM curve, the independent variable is income and the dependent variable is the interest rate.
Walras's law is a consequence of finite budgets. If a consumer spends more on good A then they must spend and therefore demand less of good B, reducing B's price. The sum of the values of excess demands across all markets must equal zero, whether or not the economy is in a general equilibrium.