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Economic Equilibrium

Equilibrium means a state of balance. It may be referred to as a situation when opposing forces for change are in balance, either important variable do not change, or opposing variables offset each other. In other words, equilibrium is a situation that is characterized by a lack of tendency to change.

The fact that equilibrium implies has no tendency to change may tempt one to conclude that equilibrium necessarily constitutes a desirable or ideal state of affairs, on the ground that only in the ideal state would there be a lack of motivation for change. Such a conclusion is unwarranted. Even though a certain equilibrium in position may represent a desirable state and something to be striven for-such as a profit maximizing situation from the firm’s point of view-another equilibrium position may be quite undesirable and, therefore, something to be avoided, such as an under-employment equilibrium is a situation, which, if attained, would tend to perpetuate itself, barring any changes in the external forces.

Ex-ante and Ex-post

Ex-ante and Ex-post are the Latin terms meaning ‘before-hand’ and ‘afterwards’ respectively. Generally, the use of these terms is made in the context of saving and investment.

In ex-ante sense, we refer to estimates of these variables at the beginning of a specific period. In ex-post sense, we refer to the specific period. Saving and investment are always equal ex-post although the two are not necessarily equal ex-ante.

The understanding of above-mentioned concepts helps us to study macroeconomic theory in the right perspective. The basis macroeconomic problem of determination of income, output and employment can be better understood, though the study of these concepts.