There are multiple notions of what equilibrium is when it comes to economics although they are all related.
There is a paper fully dedicated to this topic by Backhouse (2004).
Following Robinson (1956: 57):
The word equilibrium, in ordinary speech, describes a relation between
bodies in space. The scales of a balance are in equilibrium when the balance is at rest. . . . If we are continually throwing coppers at random into
either scale, the balance is continually wobbling and never reaches equilibrium; but, at any moment, there is a definite equilibrium position
which it would quickly reach if, from that moment, we left it alone.
Equilibrium analysis can be viewed as sort of thought experiment where to organize your thinking passage of time is held constant. Now thinking about equilibrium analysis in the way above still has few issues.
Again Robinson (1956: 59) writes:
Nor can we apply the metaphor of a balance which is seeking or tending
towards a position of equilibrium though prevented from actually reaching it through constant disturbances. In economic affairs the fact that
disturbances are known to be liable to occur makes expectations about
the future uncertain and has an important effect on any conduct (which,
in fact, is all economic conduct) directed towards future results. . . . A
belief that a particular share is going to rise in price causes people to
offer to buy it and so raises its price. . . . This element of ‘thinking makes
it so’ creates a situation where a cunning guesser who can guess what the
other guessers are going to guess is able to make a fortune. There are
then no solid weights to give us analogy with a pair of scales in balance.
The metaphor of equilibrium is treacherous. . .
However, this issue was later addressed as discipline evolved Backhouse (2004):
There is, however, an alternative way to think of equilibrium, not as the
static equilibrium analogous to that of a pendulum, but as inter-temporal
equilibrium where expectations are fulfilled (Milgate 1979, 1987, Phelps
1987). Because this idea is now so strongly associated with the New
Classical Macroeconomics and related theories, it is worth noting that Erik
Lindahl and his Swedish colleagues used the notion to attack the MisesHakek notion of neutral money. If expectations were correctly anticipated,
any rate of inflation was consistent with monetary equilibrium. The door
was opened to discretionary monetary policy. (see Laidler 1999: 58–60).
Furthermore, Backhouse (2004) also argues:
... This is the notion that equilibrium is where (a) agents’ decisions are compatible with each other and (b) no agent has any reason to
change his or her behavior. The second part of this condition (which might
be thought to encompass the first) is often represented by saying that agents
are maximizing utility subject to the constraints they face.
Consequently, in economics there are several possible notions of equilibria:
- Equilibrium as the absence of endogenous tendencies for change.
- Equilibrium as balance of forces (using a mechanical analogy).
- Equilibrium as correct expectations.
- Equilibrium as meaning that no agent has any reason to change his
or her behavior.
Which one of the 1-4 is author talking about is case dependent but most graduate level models will use either notion 3 or 4, speaking from my experience.