Competitive Equilibriums
Categories: Econ, Company Management, Metrics
Equilibrium is a state of balance between two opposing forces. Good/evil, yin/yang, hot dogs/tofu. In finance, the two forces are usually driven by supply and demand. However, competitive equilibriums deal with supply and demand from up high: the 10,000-foot level. In that sense, comparative equilibrium comprises the whole universe of consumers and the whole universe of suppliers. At equilibrium, supply and demand are in optimum balance and efficiency.
The purpose of competitive equilibrium is to predict the optimum price and quantity of a product in the market. From there, the concept can be used to look at the individual consumer. Whether that consumer is buying hot dogs, tofu, or...anything in-between. (Thanks, Whole Foods.)