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Report on Concept of Stable Equilibrium

   

Added on  2020-05-16

17 Pages1853 Words107 Views
Running head: ECONOMICS FOR BUSINESS Economics for BusinessName of the StudentName of the UniversityAuthor Note

1ECONOMICS FOR BUSINESS Table of ContentsIntroduction......................................................................................................................................2Analysis...........................................................................................................................................2Stable Equilibrium.......................................................................................................................2Economic condition of Australia.................................................................................................5Business Cycle in Australia.........................................................................................................8Economy of USA.........................................................................................................................9Economy of China.....................................................................................................................11Conclusion.....................................................................................................................................14References......................................................................................................................................15

2ECONOMICS FOR BUSINESS Introduction In the economic conceptual framework, the term “market” refers to the place ofinteraction of the buyers and the sellers of goods and services in an economy, the formerrepresenting the demand side and the latter representing the supply side. The situation reached bytheir mutual agreement is known as the “equilibrium” situation, from which none of the sellers orthe buyers have any incentive to deviate. It may so happen that the economy moves from itsequilibrium situation due to some exogenous forces. If post deviation, the market system workssuch that equilibrium is restored in the economy, then it is known as a stable equilibrium(Pearson et al., 2014). Keeping this into consideration, the report elaborates the concept of stable equilibrium inshort run and long run and tries to analyze whether the economies of the USA, Australia andChina, in the contemporary periods are experiencing a stable equilibrium situation. Analysis Stable Equilibrium The concept of stable equilibrium can be explained with the help of the following figure,which shows the dynamics in the demand and supply side of an economy:

3ECONOMICS FOR BUSINESS Figure 1: Stable Equilibrium(Source: As created by the author)As can be seen, E is the point of equilibrium in the above figure, where the demand andthe supply curve intersect each other, with Q0 and P0 being the equilibrium quantity and pricerespectively. If due to some exogenous forces, the price level rises to P1 or falls to P2, thenexcess supply (excess demand) occurs in the economy accordingly, which leads to interactions ofthe suppliers and buyers such that the economy again comes back to E, thereby indicating that Eis s stable equilibrium (Baumol & Blinder, 2015). In a macroeconomic sense, the same occurs inthe framework of aggregate supply and aggregate demand, which can be shown as follows:

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