Definition. A short run competitive equilibrium is a situation in which, given the firms in the market, the price is such that that total amount the firms wish to supply is equal to the total amount the consumers wish to demand.

Short Run Equilibrium

Short run equilibrium refers to the point at which the aggregate demand (AD) and aggregate supply (AS) curves intersect in the short run, resulting in a state of macroeconomic equilibrium. This concept plays a crucial role in understanding the overall output level, price level, and employment in an economy.

Key Points:
- Intersection of AD and AS: In the short run, the aggregate demand curve represents the total demand for goods and services in an economy at varying price levels, while the aggregate supply curve reflects the total supply of goods and services at different price levels. The short run equilibrium occurs when these two curves intersect.

- Output and Price Levels: At the short run equilibrium, the level of real output (GDP) and the price level are determined. The quantity of goods and services produced and the overall price level are determined by the intersection of AD and AS.

- Keynesian Perspective: From a Keynesian perspective, the short run equilibrium can be influenced by aggregate demand. Changes in factors such as government spending, taxation, and monetary policy can shift the AD curve, affecting the equilibrium output and price level in the short run.

- Demand-Pull Inflation: If aggregate demand exceeds aggregate supply at the short run equilibrium, it can lead to demand-pull inflation. This occurs when the overall demand for goods and services outpaces the economy's ability to supply them, resulting in rising prices.

- Cost-Push Inflation: Conversely, if aggregate supply falls short of aggregate demand at the short run equilibrium, it can cause cost-push inflation. This happens when the cost of production increases, leading to higher prices for goods and services.

- Cyclical Unemployment: The short run equilibrium also impacts employment levels in the economy. If the equilibrium output is below the full employment level, it results in cyclical unemployment, indicating a deficiency in aggregate demand.

- Adjustment to Long Run Equilibrium: In the long run, the economy tends to adjust to a different equilibrium point, known as the long run equilibrium. This occurs through changes in factors such as wages, input costs, and technology, which impact aggregate supply and adjust the economy back to full employment.

In conclusion, short run equilibrium is a fundamental concept in macroeconomics, representing the point at which aggregate demand and aggregate supply intersect. It determines the output, price level, and employment in the short run, and serves as a starting point for understanding the dynamics of an economy.