From our basic knowledge of economics, we know that economic equilibrium is the state at which demand and supply forces are equal to each other without external impact the price and quantity remain at the equilibrium value. Thus, the quantity demanded is equal to quantity provided with no excess in either supply or demand. The price of commodities in this state is known as the equilibrium price. For there to be equilibrium,the demand for a product at a specific price need to be equal to the related actual supply or the level of production. The aim of this study is to understand the concepts of a stable equilibrium and discuss the state of the Australian economy and whether it is a stable economy.
A stable equilibrium in an economy, it is hard to achieve given the difficulty of getting a situation in which goods and services supplied to meet the market demand. Due to excess demands, deficits in supplies, unstable market prices, falling incomes and recessions and expansions in the economy the stability of an economy is not easy to attain.
In a stable economy if the rare changes in demand or supply as a result of external factors will lead to a shift in the equilibrium. The changes experienced are to ensure that the equilibrium is maintained as long as the quantity demanded surpasses the one provided. Given that the surplus quantity in the market place is to the extent of AB; the price will take a downward slope. The market will keep feeling the downward pressure until the price encompasses the quantity demanded that must be equal to the level of equilibrium of the quantity supplied. In the case where the quantity demanded surpasses the quantity supplied, the amount of shortage of commodity will be indicated by CE1. The price in the market will take an upward slope as a result of the surplus in demand which means that the price will increase to the level of equilibrium of the quantity supply which must be equivalent to the demanded quantity.
A price below that of the equilibrium will cause the quantity supplied to be less than the one demanded. It will result in a decrease in quantity of commodities supplied causing a deficit of the commodity in demand. In the case where the the opposite happens and the price is above that of the equilibrium, the supplied quantity will exceed the one demanded. The additional supply will cause the price to reduce even more, moving it further away from the equilibrium. However, the probability of the price moving near the equilibrium is very minimal. The balanced state of economic equilibrium can be disrupted by external factors, such as a change in consumer preferences. This can result in a decrease in demand and, therefore, it leads to a condition of excess supply in the market. A temporary state of disequilibrium, in this case, will proceed until a new equilibrium is identified (Khan & Yannelis, 2013).
A nation’s economy is said to a stable system when it contains only minimal instabilities in output development and displays low inflation continuously. Sustainable, low and stable unemployment and a sustainable balance of payments position must also be present in a stable economic system. These are the four aims that are vital for any country to maintain macroeconomic stability. These are measured by indicators such as GDP growth rate, inflation rate, unemployment rate and balance of payments. A stable economy is often considered to be a profitable state that most developed countries have that is achieved through the implementation of actions taken by their governments.
The main purpose of the policies developed by governments is to increase the level GNI ( gross national income) as well as ensure that there is sufficient economic development and growth to support any rise in utility and standard of living of active drivers of the economy. Another purpose of government policies is to keep prices at a stable level that can only be achieved if there is little to no change in the cost of products. The stability of an economy is greately affected by too much government interventions. Fiscal policies as well as monetary policies are the main tools governmemts use to maintain a stable economy with characteristics such as maximum employment levels, monitored inflation and a fair balance of payments.
The economy of Australia is developed and one of the largest mixed market. In Australia, the economy is influenced by various factors that make it impossible of the economy to be stable. The economy of Australia has been incredibly profitable and stable for years now. It has been characterised by structural reforms, a prolonged commodity boom as well as resilient and effective macroeconomics strategy. The economy has remained strong and stable and has not marred by a recession since July 1991 (Mügge & Stellinga, 2015, pp. 42-62).
Conventional economic signals have shown that Australia’s economy is superior to that of the majority of developed countries. Despite the higher rate of inflation, the country’s growth and high rate of employment is envied by many countries. Australia is a very wealthy country by world standards and the government’s role in the economy has developed wealth and provided opportunities for the people. The worldwide financial crisis that paralysed most of the world did not affect Australia by much as its banking systems and inflation stayed strong and controlled. The productivity of opening up process has been significantly improved, in addition to more restorative growth and adaptable and active economy. Therefore it is highly unlikely for it to be drastically affected by changes in the economy. Australia is among the few advanced economies to avoid a downward influence in its economy (recession), in part because of strong principles at the start of the crisis. Growth sunk for only briefly below trend during the crisis and rebounded quickly. Australian markets have significantly low risk in addition to consistently strong grown in the gross domestic product (GDP), nonvolatile interest rates and considerably superior levels of employment with climbing exchange rates (Hatfield-Dodds et al, 2015).
It is evident that Australia’s economy is stable. The economic growth rates of Australia are robust and superior to that of most developed countries including the United Kingdom and the United States. Recent statics shows that Australia has a GDP greater than countries that are considered to be the most industrialised such as Germany, the United Kingdom, and France. The Policies developed by the Australian government have ensured that the country’s economy carries minimal risk, has high employment levels and a robust GDP, climbing foreign exchange rates as well as dependable cash flow rates.
Khan, M. A., & Yannelis, N. C. (Eds.). (2013). Equilibrium theory in infinite dimensional spaces (Vol. 1). Springer Science & Business Media.
Mügge, D., & Stellinga, B. (2015). The unstable core of global finance: Contingent valuation and governance of international accounting standards. Regulation & Governance, 9(1), 47-62.
Hatfield-Dodds, S., Schandl, H., Adams, P. D., Baynes, T. M., Brinsmead, T. S., Bryan, B. A., ... & McCallum, R. (2015). Australia is' free to choose'economic growth and falling environmental pressures. Nature, 527(7576), 49.
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