ABSTRACT
Examining this further, we note that equilibrium as a balance of forces (as the word implies)1 in some sense is at the base of all other equilibrium concepts. And if “change” (and its absence) is defined appropriately, definitions 1 and 2 are seen to be equivalent. So, for example, the traditional supply and demand equilibrium is a balance of forces that acts to keep prices stable (at rest). In the case of the price of an asset, we may say that if the price is stable, the bulls balance the bears.2 In the case of a perishable good, those forces (whatever they are, technology, price expectations, etc.) that tend to influence the amounts offered for sale and purchase at various prices, in such a way that tends to push the price up, are balanced by those that tend to push it down. This is one way to think of stable prices. If neither supply nor demand change, price (once in equilibrium) will not change. It is also an optimum (definition 5) of sorts in the well-understood sense that, given the fundamental conditions of supply and demand, buyers and sellers are doing the best they can. From another perspective, it is a constrained maximum (definition 4) in that buyers and sellers maximize the perceived opportunities to buy and sell, and thereby achieve a maximum of “satisfaction” as determined by their preferences in relation to the (perceived) opportunities. It may not be an optimum, however, if there are opportunities of which the economic agents are unaware (see Kirzner 1990), or if their actions affect opportunities in other markets adversely. Also, it is possible to see how momentary equilibrium can be generalized to a situation of uniform change (definition 3)—for example, where demand and supply increase proportionately.
