Google
Saturday 
July 5, 2025 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
DEPOSIT INSURANCE: A program of guaranteeing, or insuring, customers' deposits at a bank or similar institution. Since the 1930s bank deposits have been insured by the Federal Deposit Insurance Corporation (FDIC). Other programs have insured deposits at credit unions and savings and loan associations. The FDIC works like this -- If a bank is unable to pay back all or part of its customers' deposits because it has done something like go out of business, then the FDIC steps in to make up the difference--up to a pretty hefty limit.

Visit the GLOSS*arama


STABLE EQUILIBRIUM:

Equilibrium that is restored if disrupted by an external force. Most economic models have equilibrium that is stable, reflecting the observation that the real world adapts to changes and maintains a fair degree of stability. The alternative to a stable equilibrium is an unstable equilibrium.
A stable equilibrium exists if a model or system gravitates back to equilibrium after it is shocked. The analogy is much like a marble resting at the bottom of a bowl. Should the marble be nudged a bit up one side of the bowl, it returns, eventually coming to rest at the bottom once again.

A common example of a stable equilibrium in the study of economics is a market equilibrium. Should the equilibrium be disrupted, the market returns to equilibrium.

The process works like this:

What makes this a stable equilibrium is that balance is restored automatically, through the fundamental workings of the market. In particular, the price changes in the correct direction to eliminate the shortage or surplus.
  • Shortage: A shortage arises if the market price is below the equilibrium price. The quantity demanded exceeds the quantity supplied. The shortage then prompts the price to rise. Buyers, who are unable to buy as much of the good as they want, bid the price higher. A higher price is exactly the remedy needed. The price rise causes a decrease in the quantity demanded (according to the law of demand) and an increase in the quantity supplied (according to the law of supply). Both changes in quantity act to reduce and eventually eliminate the shortage, thus restoring equilibrium.

  • Surplus: A surplus arises if the market price is above the equilibrium price. The quantity supplied exceeds the quantity demanded. The surplus then prompts the price to fall. Sellers, who are unable to sell as much of the good as they want, force the price lower. A lower price is exactly the remedy needed. The price decline causes an increase in the quantity demanded (according to the law of demand) and a decrease in the quantity supplied (according to the law of supply). Both changes in quantity act to reduce and eventually eliminate the surplus, thus restoring equilibrium.

The contrast to stable equilibrium is unstable equilibrium. The preceding market equilibrium is unstable if a shortage causes the price to fall, rather than rise, and a surplus causes the price to rise, rather than fall. In this case, the price movement increases the shortage or surplus, moving the market farther away from equilibrium.

<= STABILIZATION POLICIESSTANDARD OF DEFERRED PAYMENT =>


Recommended Citation:

STABLE EQUILIBRIUM, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: July 5, 2025].


Check Out These Related Terms...

     | unstable equilibrium | equilibrium | market equilibrium | equilibrium price | equilibrium quantity |


Or For A Little Background...

     | equilibrium | demand determinant | supply determinant | demand curve | supply curve | law of supply | law of supply | ceteris paribus |


And For Further Study...

     | comparative statics | shortage | surplus | invisible hand | self correction, market | graphical analysis, market equilibrium | market disequilibrium | invisible hand | market clearing | competitive market |


Search Again?

Back to the WEB*pedia


APLS

YELLOW CHIPPEROON
[What's This?]

Today, you are likely to spend a great deal of time watching the shopping channel trying to buy either one of those memory foam pillows or a remote controlled train set. Be on the lookout for rusty deck screws.
Your Complete Scope

This isn't me! What am I?

It's estimated that the U.S. economy has about $20 million of counterfeit currency in circulation, less than 0.001 perecent of the total legal currency.
"Plans are only good intentions unless they immediately degenerate into hard work."

-- Peter Drucker, management consultant

ACCR
Annual Cost of Capital Recovery
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2025 AmosWEB*LLC
Send comments or questions to: WebMaster