Economics for Business: Stable Equilibrium Analysis of Economies

This report provides an analysis of stable equilibrium within the framework of economics for business, focusing on the interplay of supply and demand, and the concept of equilibrium. The report investigates the economic conditions of Australia, the USA, and China, examining key indicators such as GDP, unemployment rates, and inflation rates. It explores the business cycles within Australia and assesses the stability of these economies. The report concludes that the economies of the USA and China are progressing towards stable equilibrium, while Australia, though experiencing fluctuations, is showing signs of stabilization. The analysis uses macroeconomic principles, including aggregate supply and demand, to support its conclusions. The report also references various economic models and theories to provide a comprehensive understanding of the subject.

Running head: ECONOMICS FOR BUSINESS
Economics for Business
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction......................................................................................................................................2
Analysis...........................................................................................................................................2
Stable Equilibrium.......................................................................................................................2
Economic condition of Australia.................................................................................................5
Business Cycle in Australia.........................................................................................................8
Economy of USA.........................................................................................................................9
Economy of China.....................................................................................................................11
Conclusion.....................................................................................................................................14
References......................................................................................................................................15

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Introduction
In the economic conceptual framework, the term “market” refers to the place of
interaction of the buyers and the sellers of goods and services in an economy, the former
representing the demand side and the latter representing the supply side. The situation reached by
their mutual agreement is known as the “equilibrium” situation, from which none of the sellers or
the buyers have any incentive to deviate. It may so happen that the economy moves from its
equilibrium situation due to some exogenous forces. If post deviation, the market system works
such 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 in
short run and long run and tries to analyze whether the economies of the USA, Australia and
China, 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:

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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 and
the supply curve intersect each other, with Q0 and P0 being the equilibrium quantity and price
respectively. If due to some exogenous forces, the price level rises to P1 or falls to P2, then
excess supply (excess demand) occurs in the economy accordingly, which leads to interactions of
the suppliers and buyers such that the economy again comes back to E, thereby indicating that E
is s stable equilibrium (Baumol & Blinder, 2015). In a macroeconomic sense, the same occurs in
the framework of aggregate supply and aggregate demand, which can be shown as follows:

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Figure 2: Stability in equilibrium (Macroeconomic sense)
(Source: As created by the author)
In long run, the interactions of the short run AD and AS leads to the creation of a vertical
long run aggregate supply curve:

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Figure 3: Long run supply curve
(Source: Mankiw, 2014)
Taking this into account the following section, tries to analyze the stability in the
equilibrium situation (if any) for the countries into consideration.
Economic condition of Australia
One of the most notable economies in the contemporary global scenario, which have been
showing impressive trends of growth and sustainability for a prolonged period is the economy of
Australia. However, in the last few years, the largest market economy in the world has been
incorporating considerable fluctuations (not all positive) in the growth pattern, with the
consistently increasing GDP of the country, experiencing a gradual decline in the last few years:

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Figure 4: Australia GDP (2006-2016)
(Source: Tradingeconomics.com, 2017)
The condition of the economy can also be assessed by observing the trends in the level of
unemployment prevailing in the economy and the dynamics in the same, which is shown as
follows:

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Figure 5: Unemployment rate in Australia
(Source: Tradingeconomics.com, 2017)
As is clear from the above figure, the economy of Australia has experienced considerably
high rates of fluctuations in its rate of unemployment, with the same increasing strongly till
2015. Post 2015, the same decreased to some extent, however, there are considerable fluctuations
in the same in the current period.
Figure 6: Australian rate of inflation
(Source: Tradingeconomics.com, 2017)

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The economic situation of a country can also considerably explained by the price level
prevailing in the economy. Australia, in this aspect has experienced considerable fluctuations in
the inflation rates, which are measured in terms of the Consumer Price Index. However, the
overall trend has been falling and the fluctuations are also becoming less dramatic in the recent
years, fluctuations are still present in the price levels of the economy (McCombie & Thirlwall,
2016).
Business Cycle in Australia
The fluctuations in the different economic indicators in Australia, can be explained with
the help of business cycle theory, which states that due to the workings of the endogenous and
exogenous economic factors, the economy of a country experiences phases of booms and
recessions in its path of progress:
Figure 7: Business Cycle in Australia
(Source: As created by the author)

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Taking reference to this theory and from the evidences provided above, it can be argued
that in the current situation, the economy of Australia has been experiencing several fluctuations
owing to its asset bubble burst, housing and banking market crisis, withering of the mining
industry boom and others.
The government of the country however has been working effectively in the current
period, by incorporating stabilizing policies, which can be seen in the damping of the
fluctuations.
Economy of USA
The economy of the USA has been strongly prospering in the last few years, which is
evident from the consistent and impressive growth of the GDP of the country over the years:
Figure 8: GDP of the USA
(Source: Tradingeconomics.com, 2017)

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The stable growth in the GDP of the country is accompanied by a fall in the fluctuations
of the overall CPI adjusted price levels in the country:
Figure 9: Inflation rate in the USA
(Source: Tradingeconomics.com, 2017)
As can be seen from the above figure, the rate of inflation, which experienced significant
fluctuations till 2010, started to stabilize post 2010, with the fluctuations toning down
considerably in the current period.

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Figure 10: Unemployment Rate in the USA (2014-2017)
(Source: Tradingeconomics.com, 2017)
The rate of unemployment in the country has been consistently decreasing consistently
over the last few years and the fluctuations have also damped considerably during this time.
Together, these economic trends indicate that the USA has been reaching towards the
situation of a stable equilibrium in the contemporary period (Schneider, 2013).
Economy of China
One of the primary global economies, which have been growing at an outstandingly
impressive rate and has surpassed the developed economies in terms of economic growth, is the
economy China. The country is the second largest in the international scenario in terms of GDP
growth which can be seen from the following figure: