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Assignment on State of Australian Economy

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Added on  2020-04-07

Assignment on State of Australian Economy

   Added on 2020-04-07

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Running head: STATE OF AUSTRALIAN ECONOMY 1State of Australian EconomyNameInstitution
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STATE OF AUSTRALIAN ECONOMY 2STATE OF AUSTRALIAN ECONOMYIntroductionThe economic analysis below seeks to understand the health of Australian economy andthe need for Australian government intervention by using economic principles and theory. Adiagram will be used in the explanation if the concept of a stable economic equilibrium based onthe assessment of whether or not the economy of Australia is presently at a stable equilibrium.The phrase ‘equilibrium’ is drawn from 2 Latin words called “acqui” and “libra”. Acqui impliesequal while libra means to balance. Therefore, equilibrium implies ‘equal balance’. Theequilibrium has been applied vitally in economics hence the equilibrium economics. Equilibriumin economics explains a state at which two opposite forces cannot influence each other. Simplyput, equilibrium is a position whereby no further change is feasible. Three types of equilibriuminclude stable, neutral and unstable equilibrium. Concept of Stable Equilibrium We deal with stable equilibrium which can simply be understood by having a ball restingat the bottom of a bowl. The ball is comfort at the bowl’s base and remains in stable equilibriumand any disturbance still leaves this ball at its original position. The figure below illustrates astable equilibrium:
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STATE OF AUSTRALIAN ECONOMY 3In the above figure, DD denotes a negatively slopped demand curve and SS represents apositively demand curve. The equilibrium takes place at point E. At this juncture, the demandand supply remain in balance; the equilibrium quantity and price OQ; OP are determinedrespectively. This is a typical instance of stable equilibrium in economics. What takes place atprice above level of equilibrium?Assuming that market price is OP1. At such a price, P1B is quantity supplied whereas thequantity demand is solely P1A. Therefore, quantity supplied remains more than quantitydemanded. The surplus quantity in market is to extent of AB. This establishes a downwardpressure on price (Plumb, Kent & Bishop, 2013). The downward pressure will apply till pricehits equilibrium level at which supplied quantity equals demanded quantity. What happens atprices beneath equilibrium level?In the above figure, let us assume the price OP2. At this level of price, supplied quantityis less than demanded quantity. CE1 represents volume of commodity shortage. As a result ofexcess demand, an upward pressure on price is applied. Such a pressure pushes up price toequilibrium level that supplied quantity equals demanded quantity.
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