Intertemporal equilibrium is a notion of

economic equilibrium In economics, economic equilibrium is a situation in which the economic forces of supply and demand are balanced, meaning that economic variables will no longer change. Market equilibrium in this case is a condition where a market price is es ...

conceived over many periods of

time Time is the continuous progression of existence that occurs in an apparently irreversible process, irreversible succession from the past, through the present, and into the future. It is a component quantity of various measurements used to sequ ...

. In modern economic

theory A theory is a systematic and rational form of abstract thinking about a phenomenon, or the conclusions derived from such thinking. It involves contemplative and logical reasoning, often supported by processes such as observation, experimentation, ...

, most models explicitly take into account the fact that the economy evolves over time, and that its equilibrium cannot be fruitfully analyzed from a purely static perspective. Therefore the

general equilibrium In economics, general equilibrium theory attempts to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets, by seeking to prove that the interaction of demand and supply will result in an ov ...

of the economy is conceived as an intertemporal equilibrium, meaning that

household A household consists of one or more persons who live in the same dwelling. It may be of a single family or another type of person group. The household is the basic unit of analysis in many social, microeconomic and government models, and is im ...

s and firms are assumed to make intertemporal decisions. That is, households are assumed to choose consumption and labor on the basis of

wage A wage is payment made by an employer to an employee for work (human activity), work done in a specific period of time. Some examples of wage payments include wiktionary:compensatory, compensatory payments such as ''minimum wage'', ''prevailin ...

price A price is the (usually not negative) quantity of payment or compensation expected, required, or given by one party to another in return for goods or services. In some situations, especially when the product is a service rather than a ph ...

utility In economics, utility is a measure of a certain person's satisfaction from a certain state of the world. Over time, the term has been used with at least two meanings. * In a normative context, utility refers to a goal or objective that we wish ...

, and

wealth Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating Old English word , which is from an ...

over their whole lifetimes, instead of considering these quantities at just one point in time. Likewise, firms are assumed to choose hiring, investment, and output on the basis of

productivity Productivity is the efficiency of production of goods or services expressed by some measure. Measurements of productivity are often expressed as a ratio of an aggregate output to a single input or an aggregate input used in a production proce ...

and

demand In economics, demand is the quantity of a goods, good that consumers are willing and able to purchase at various prices during a given time. In economics "demand" for a commodity is not the same thing as "desire" for it. It refers to both the desi ...

over the foreseeable future, instead of considering these quantities at just one point in time. The intertemporal general equilibrium is then analyzed as the

Nash equilibrium In game theory, the Nash equilibrium is the most commonly used solution concept for non-cooperative games. A Nash equilibrium is a situation where no player could gain by changing their own strategy (holding all other players' strategies fixed) ...

competitive equilibrium Competitive equilibrium (also called: Walrasian equilibrium) is a concept of economic equilibrium, introduced by Kenneth Arrow and Gérard Debreu in 1951, appropriate for the analysis of commodity markets with flexible prices and many traders, and ...

of the intertemporal strategies of all the households and firms (and any other economic agents under consideration, such as governments).

References

Intertemporal economics {{Econ-stub