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Economics for Business Assignment Equilibrium

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Added on  2020-04-07

Economics for Business Assignment Equilibrium

   Added on 2020-04-07

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Running head: ECONOMIC OF BUSINESS1Economic of BusinessStudent’s NameUniversity’s Name
Economics for Business Assignment Equilibrium_1
ECONOMIC OF BUSINESS2EquilibriumThe term equilibrium stands for equal balance. According to physics, an object is referredto be in the state of balance when two forces of equal magnitude working in opposite direction balance each other. This concept of physics is not limited to it but is also applicable to economicsand, the economists term it as equilibrium economics. Equilibrium is a state where any further change is not possible or applicable and two acting forces are not able to influence each other[ CITATION Sun17 \l 1033 ]. Stable EquilibriumStable equilibrium - In stable equilibrium, if the economy of a company gets disrupted due to the change in any of its determining factors, it resumes back to the original point after self-adjustment and the original equilibrium is stored again. There is no net change in the initial and final equilibrium state of the company. This equilibrium can be observed when the demand price is equal to the supply price and there is no tendency of increase in the total amount produced. At this stage, the stable equilibrium is maintained. It can be compared to the pendulumas well which comes back to its original position just after it gets displaced [CITATION con17 \l1033 ].Concept of Stable EquilibriumIn macroeconomics, when aggregate demand = aggregate supply, the stable equilibrium is established for the country. The factors that influence aggregate demand can be written as-C + I + G + Nx = increase or decrease in DD
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ECONOMIC OF BUSINESS3Where, P - priceQ - quantity of goodS - supplyD - demandP0 - price of market balanceA - surplus of demand - when P<P0B - surplus of supply - when P>P0In the above plotted graph between Price and quantity of the consumer product. This is a classical stable equilibrium example in economics. SS stands for a positively sloped demand curve and DD stands for a negatively sloped demand curve. Point E is the point of equilibrium where the supply and the demand are balanced. At this point only, OP (the equilibrium Price) and OQ (the equilibrium quantity) are determined. In a case when the supplied quantity is more than the quantity demanded, the surplus quantity will be to the level of AB. This forms a downward pressure on the price in the market. This pressure is kept applied downwards until the state of equilibrium is attained, i.e., the quantity demanded equals the quantity supplied - (Surplus)
Economics for Business Assignment Equilibrium_3

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