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A state in which the forces making for change are in balance. This concept is central to neo-classical economics, where a free market working perfectly is supposed to tend towards a state of equilibrium. If the forces of supply and demand for all goods and services and all factors of production are balanced in such a way that all supply is consumed and all demand is met, and no participant( s) in the economy can derive any further income or satisfaction from doing anything other than what is presently done, this would constitute a state of equilibrium which would be maintained until a change took place, response to which would eventually restore equilibrium.
Suppose that, in a perfectly competitive economy in equilibrium, either the extraction of coal becomes more difficult or resources are depleted, and that the coal owners put up the price of coal so as to meet the rising cost of mining. As the consumption of coal is to some extent sensitive to its price, demand for coal is reduced. The mine owners may then find that they have coal unsold and reduce its price a little to get rid of it. Eventually the balance of forces of supply and demand will be regained by these market adjustments, at a point where the prevailing price just clears the stocks of coal supplied. Equilibrium will have been restored. This process may, of course, involve bringing back into balance other elements of the economy disturbed by change in the coal market, e.g. if there is less coal produced than before under the new state of equilibrium this may affect employment in mining, coal delivery and so on, while if the new market price is higher some customers may substitute other sources of fuel for coal.
In reality, an economy will be in a process of perpetual adjustment to change. Equilibrium is an ideal state never achieved in practice but helpful as a concept in the understanding of a market-regulated economy. A distinction is sometimes made between general equilibrium, which relates to the entire economy, and partial equilibrium, which refers to a single market or limited set of related activities.
Spatial equilibrium refers to balance in a spatially disaggregated economy. Change in such a system can be spatially selective; the rise in the price of coal may be confined to a specific region and restoration of equilibrium involves change and its repercussions working their way from place to place as well as from one market to another. The spatial version of neo-classical economics suggests the equalization of income as a feature of spatial equilibrium, since regional disparities in wages should encourage labour to move to regions where wages are highest and/or capital to move to regions where wages are lowest until equality is achieved and no advantage is to be obtained from further movement (see convergence, regional). Just as imperfection in market mechanisms can frustrate the achievement of equilibrium in general so, in geographical space, obstacles to the free mobility of labour, capital and so on impede adjustment to wage and price differentials.
The concept of spatial equilibrium has been partly responsible for some misconceptions in regional development theory and planning practice. The terms equilibrium and balance have desirable connotations and the idea of a self-regulating space economy tending towards equalization of incomes encourages a view that market mechanisms are capable of promoting more even development if planners somehow harness them to a public purpose. However, the tendency of market economies under capitalism in reality is more one of concentration and centralization, characterized by uneven development and inequality of living standards, especially in the undeveloped world. (DMS) |
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