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Main Dictionary E

Equilibrium

Equilibrium refers to the state of the economy in which the output is realized and demand is satisfied, when available labor and production capacity are used in full, and the disturbed proportions are quickly restored.

Equilibrium Explained

Equilibrium of economy describes a situation in which request for a product or service in a particular market equals the supply. In this case, the proportion of a product and its price are called equilibrium.

The equilibrium price is determined at the intersection of the requisition curve and the proposal curve and is the price at which the volume of market demand will equal the volume of market supply. That means equilibrium volume refers to the volume of offer and demand that will develop in the market at the equilibrium price.

The mechanism of market equilibrium is expressed in the change in market price in accordance with changes in offer and inquiry until the redistribution of goods in the market is not carried out depending on the amount of purchasing power of consumers. The price rises until it is equal to the value of a good or service in case of exceedance of the supple level. Conversely, when a proposal on the good or service exceeds demand on it, the cost of the good or service decreases until it reaches the appropriate size.

To clear up again, equilibrium is the state of the economy in which market supply and inquiry appraise each other resulting in price stability. 

Nowadays, there are multiple examples of artificial control over the equilibrium price. It is normally done by companies and enterprises that form monopolies or group in cartels. This allows them to set prices on the particular types of the production they specialize in and supervise the supply and request equilibrium. One of the samples of cartel equilibrium control is OPEC, or the Organization of the Petroleum Exporting Countries. OPEC members hold about 2/3 of the world's oil reserves. They account for 35% of world production and half of world oil exports. This alliance empowers its members to dictate equilibrium conditions that are suitable for them, specifically they establish the petroleum sell price to the rest of the world, managing the demand and supply ratio.

Disequilibrium

Generally, with over-supply of goods or services costs tend to decrease, but this reduction develops an increase in demand. Request enlargement encourages prices to go up. This also leads to the inquiry drop. The balancing effect of offer and requisition results in a state of equilibrium.

The further away the values of macroeconomic parameters from the state of general economic equilibrium, the narrower the zone of effective solution of these problems and the range of alternative possibilities to transfer the economy from one disequilibrium state to another, more favorable for further development.

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