A Little Background

How about a quick example?

Suppose that the twins Donna and Rhonda Newberry encounter one of those doors that swings in and out, like what is commonly found separating the kitchen and the dinning area in restaurants. Donna is on one side trying to come into the kitchen, and Rhonda is on the other side trying to go out. They both push and push, but being twins with equal strength and tenacity, neither can go through.

If each continues to push for hours on end, with neither making progress (like the Three Stooges or the Marx Brothers), then they have encountered the notion of equilibrium. Donna is one opposing force and Rhonda is the other. And until someone or something (perhaps the Keystone Cops) intervenes, then they continue this stalemate, unsuccessfully pushing in opposite ways, in a state of equilibrium.

Political Views

• Rhonda represents one mind. She contends that equilibrium is THE natural state of the world that perpetually persists unless it is disrupted. Such disruptions are thought to be infrequent and short lived.


• Donna exhibits the other mind. She feels that equilibrium is more of a goal that the economy pursues. This equilibrium goal is seldom if ever achieved. And if achieved persists temporarily.

More relevant to the study of economics, these two views also underlie alternative economic policies that tend to be affiliated with different political views.

• If the world tends to be IN equilibrium, then there is little or no need for government intervention, which is consistent with a conservative political view of limited government.


• Alternatively, if the world tends to PURSUE equilibrium, then there is a definite role for government intervention to help it along the way, which is consistent with a liberal political view of a paternalistic government.

Alternative Theories

• Macroeconomic Flux: The study of macroeconomics tends to lean more toward the "flux" view of equilibrium. Two key equilibrium states that are pursued are found in the aggregate market and Keynesian economics. Equilibrium is reached in the aggregate market at a price level in which aggregate demand is equal to aggregate supply. Equilibrium is reached in the study of Keynesian economics at a production level in which aggregate expenditures are equal to aggregate production.


• Microeconomic Being: Microeconomic analysis tends to be more comfortable with the "being" view of equilibrium. In addition to the standard market model, two other cornerstone analyses--consumer demand theory and short-run production--rely heavily on this notion. In the theory of consumer demand, equilibrium is reached by when consumers select a combination of two or more goods that equate the marginal utility-price ratios. In the analysis of the short-run production by a firm, equilibrium is reached at a production level in which marginal cost is equal to marginal revenue.

Stable and Unstable

An example of a stable equilibrium is a ball resting peacefully at the bottom of a bowl. If the ball is nudged up the side of the bowl, it falls back, and it eventually returns to rest at the bottom of the bowl. An unstable equilibrium, in contrast, is like a ball perched tenuously atop an upside-down bowl. If the ball is nudged, it roles down the side of the bowl, onto the table, off the table, onto the floor, out the door, down the street, into traffic, and then causes a 27-car traffic pile-up that kills 7 people. In other words, it does not return to equilibrium.