EQUILIBRIUM OF INDUSTRY

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EQUILIBRIUM OF INDUSTRY

An industry is said to be in equilibrium when there is 110 tendency for it to increase or decrease its output. Now, it will have no tendency to expand or contract its output only when the demand for and supply of its product are in equilibrium. If, for instance, the demand for its product exceeds the supply, the output is hound to increase. On the other hand, if the supply is greater than the demand for its product, the supply will have tll be contracted to restore the equilibrium between demand ami supply. Hence, equality between demand and supply for the product of industry is very essential if the industry is to be in equilibrium. We know that the equilibrium of the firm does not determine the price under perfect competition. A firm operating under perfect competition has to accept the price prevailing in the market. But it is the equilibrium of the industry as a whole that determines the price under perfect competition. This means that there must be an equilibrium between demand for the product of the industry and the supply of that product by the industry. Hence we may say that industry is in equilibrium at the level of output at which the quantity demanded and the quantity supplied of its product are equal, i.e., at which the demand curve for the product of industry and its supply curve intersect each other.

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EQUILIBRIUM OF INDUSTRY