|
|
AGGREGATE EXPENDITURE LINE: A line representing the relation between aggregate expenditures and gross domestic product used in the Keynesian cross. The aggregate expenditure line is obtained by adding investment expenditures, government purchases, and net exports to the consumption line. As such, the slope of the aggregate expenditure line is largely based on the slope of the consumption line (which is the marginal propensity to consume), with adjustments coming from the marginal propensity to invest, the marginal propensity for government purchases, and the marginal propensity to import. The intersection of the aggregate expenditures line and the 45-degree line identifies the equilibrium level of output in the Keynesian cross.
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.
Recommended Citation:STABLE EQUILIBRIUM, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: April 21, 2025].
Check Out These Related Terms... | | | | | |
Or For A Little Background... | | | | | | | | |
And For Further Study... | | | | | | | | | | |
Search Again?
Back to the WEB*pedia
|
|
|
WHITE GULLIBON
[What's This?]
Today, you are likely to spend a great deal of time at a dollar discount store wanting to buy either an AC adapter for your CD player or storage boxes for your family photos. Be on the lookout for slow moving vehicles with darkened windows.
Your Complete Scope
This isn't me! What am I?
|
|
|
A U.S. dime has 118 groves around its edge, one fewer than a U.S. quarter.
|
|
|
"Inside the ring or out, ain't nothing wrong with going down. It's staying down that's wrong. " -- Muhammad Ali
|
|
BIS
Bank for International Settlements
|
|
|
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
|
|
