Equilibrium and Explanation

Abstract

This chapter presents my personal views on the method of equilibrium in economics. The problem posed by this topic is that there is no general concept of equilibrium: rather, there is a method of equilibrium analysis that is employed in most of economics. Thus, the subject of enquiry is as diverse as economics itself. The chapter is therefore a compromise between a discussion of the general method of equilibrium itself, and an examination of its various manifestations in particular economic models. A resolution of this tension is sought by a detailed examination of the models that seem to form the core of standard undergraduate and graduate courses. This is a useful exercise since the ‘concept’ of equilibrium is born early on in a student’s career — indeed, in the opening lectures of an introductory course. Once it has been introduced, it is rarely discussed in detail again.