Intertemporal Equilibrium

Categories: Econ, Financial Theory

See: Intertemporal Substitution Effect.

An intertemporal equilibrium is a market equilibrium that’s analyzed across multiple time periods rather than as a snapshot in time.

Why? Because that’s how people and firms make decisions. If you’re not going grocery shopping today...nor tomorrow...you’ll eventually have to go (and go you will...and spend). Firms might decide to save, save, save...waiting for the right moment in invest in more equipment and land, at which point they’ll be spending and investing.

Since we all make decisions based on some rhythmic time scale, we should be looking at market equilibriums intertemporally, too. Austrian economics theorizes that there’s almost always a long-term equilibrium, so current states of disequilibrium are assumed to be short-lived: part of a larger picture of balance.

Related or Semi-related Video

Econ: What is Market Equilibrium?4 Views

00:00

And finance Allah shmoop what is market equilibrium All right

00:07

people when we're talking market equilibrium we're talking about the

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market for a specific good or service pick a thing

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Anything Market equilibrium happens when the quantity demanded of a

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thing equals the quantity supplied of a thing at a

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given price Well at market equilibrium there's no excess supply

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which would mean you know cranky suppliers and no excess

00:27

demand which would mean cranky consumers at equilibrium Everybody's chill

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at a price Well the reason economist gush over market

00:35

equilibrium like a diehard believer at a J Beat's concert

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is because well it's kind of a magical force of

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its own Like the mother nature of capitalism When the

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market is competitive market equilibrium happens naturally If you ever

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heard of Adam Smith's invisible hand well this is what

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he was talking about In a perfectly competitive market where

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there are lots of equally size sellers selling no Amazons

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or Walmart stopping all over the little guy's the invisible

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hand is what keeps surpluses and shortages from happening For

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example the fake mustache market Yes there's a market for

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that where the mustache supply curve crosses with the mustache

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demand curve And that's where mustache equilibrium is that drop

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a plumb line down from equilibrium to see the equilibrium

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Quantity of moustache is likewise You can see the equilibrium

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price where the supply and demand curves cross on the

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left hand side of graft In our perfectly competitive mustache

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market the amount of moustache is sold in the price

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they're soul That is capitalism's invisible hand at work When

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suppliers try to sell their fake mustache is at too

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high a price Consumers will Balkh They'll think it's a

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rip off and go buy somewhere else instead Leaving cellars

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with a surplus of fake mustache is Remember the mustache

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market has many mustache suppliers all competing against one another

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well because consumers will flock to the mustache supplier with

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the best value like best prices in this case since

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it's all the same moustache Will this keep suppliers from

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holding the fake mustache market hostage Many mustache The buyers

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competing for the dollars of mustache buyers will naturally drive

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prices down if they're too high Well the invisible hand

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smacks mustache suppliers upside the head making suppliers realized they

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should drop their price if they want to sell some

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moustache is but they don't want to make the price

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too low because well if suppliers dropped the price of

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a fake moustache is too low Well there will be

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a mustache shortage in a while We can't have that

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right The moustache will be super cheap Everyone rushed to

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buy one and there won't be an in store and

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people be cranky Yes when there's a shortage of moustache

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is there's an ugliness Not even the best fake mustache

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could cover up Consumers will be at each other's throats

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Fighting over fake moustache is like it's Black Friday or

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something like that When they're all sold out consumers will

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be demanding Mauritz just too good of a deal So

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in the case of a moustache shortage the invisible hand

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will be smacking mustache suppliers upside the head again making

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the supplier realized they could be making more money if

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they sold more Mustache is and at a higher price

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Well after competitive suppliers get some wise guidance from the

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smack smack invisible hand We get market equilibrium Just like

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Goldilocks The invisible hand says Uh not too much not 00:03:08.503 --> [endTime] too little but just right Yeah

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