Question

How do economists define equilibrium in financial markets?

Short answer

situation where different variables like supply and demand are balanced and the value of variable does not change is called equilibrium.

Step-by-step solution

Step 1. Financial Market

People who invest their money in financial securities are savers as they invest their money they get a rate of return on investment amount. And person who need money and borrow it by paying a rate of return on borrowed amount is borrower. So according to this we can conclude that savers are suppliers and borrowers are demanders.

Step 2.concept

situation where different variables like supply and demand are balanced and the value of variable does not change is called equilibrium.

In this market for credit card borrowing, in above diagram

the supply curve (S) and the demand curve (D) cross at the

equilibrium point (E).

Step 3. Explanation

In the above diagram the equilibrium point is occurring at E where

there is interest rate of 15%, and quantity of funds demanded and

the quantity supplied are equal at an equilibrium of quantity i.e. $600 billion.