The conditions of supply constitute but one aspect of the determination of the economic situation

A market equilibrium is no less important. It is a situation in which the actions of all economic

Agents are mutually consistent. It is a concept meaningfully applied to any variable whose

Level is determined by the outcome of the operation of at least one mechanism or process acting on

Countervailing forces. For example, equilibrium price is affected by a process which drives suppliers

To increase prices when demand is in excess and to undercut each other when supply is in

Excess — the mechanism thus regulates the forces of supply and demand.

It is possible for a short-run equilibrium to exist, when some quickly adjusting processes are in

Balance, while other longer-term forces are still causing change to occur. For example, in perfect

competition, in the short run firms’ profit-maximizing behaviour can lead to a market equilibrium

With price equal to marginal cost; yet if abnormal profits exist at that price, new firms might enter

The industry — a process quite separate from the price-setting behaviour of those already in it —

That will change the long-term equilibrium price.

A distinction can be drawn between a static equilibrium, when the value of the relevant variable is

Unchanging, and a dynamic equilibrium, when the value of the variable is changing but in a regular