|
|
GOLDSMITH MONEY CREATION: An illustration of the basic money creation process undertaken by banks using the hypothetical activities of a hypothetical goldsmith. The goldsmith profession of Medieval Europe provides insight into the modern banking business, including the seemingly magical ability of banks to create valuable money out of inputs with significantly less value.
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, 2000-2024. [Accessed: May 9, 2024].
Check Out These Related Terms... | | | | | |
Or For A Little Background... | | | | | | | | |
And For Further Study... | | | | | | | | | | |
Search Again?
Back to the WEB*pedia
|
|
|
GRAY SKITTERY
[What's This?]
Today, you are likely to spend a great deal of time looking for a downtown retail store looking to buy either a travel case for you toothbrush or a looseleaf notebook binder. Be on the lookout for gnomes hiding in cypress trees.
Your Complete Scope
This isn't me! What am I?
|
|
|
The average bank teller loses about $250 every year.
|
|
|
"Nothing great has ever been achieved except by those who dared believe that something inside them was superior to circumstances. " -- Bruce Barton, Advertising executive
|
|
SBDC
Small Business Development Center
|
|
|
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
|
|
