A market is said to attain equilibrium at the time when demand as well as conditions of supply in the market aligns properly. Again, the equilibrium can also be considered to be a stable equilibrium in case if any alterations from the state of equilibrium automatically reinstate state of equilibrium. There are different forces that adjust for maintaining market equilibrium. Essentially, the current study elucidates illustratively stable equilibrium utilizing plain mechanisms of demand as well as supply. In addition to this, the study also explicates in detail the insinuation of market stabilization for an individual market as well as the entire economy is taken into consideration. Moving further, this paper also reflects stability in the Australian economy, depending mainly on the market economy. Fundamentally, the economy also deals with maintenance of stable circumstances if required.
Conditions of Economic Stability
Fundamentally, demand as well as supply curve explicates conduct of both purchasers and sellers in a specific market (Mankiw, 2014). Essentially, equilibrium along with stability in equilibrium is demonstrated in the figure numbered 1. Particularly, the demand curve replicated is also referred to as DD and the supply curve is referred to as SS in the present figure. Essentially, the initial equilibrium can be necessarily attained at a specific point in which demand as well as supply meets at a particular point, as in this case the point is E. In this case, P* is the point of equilibrium level of price that has the corresponding level of quantity is Q*. However, in case of digression from the position of equilibrium necessarily brings return to the point of equilibrium routinely, then in that case the equilibrium point E can be considered as a stable equilibrium (Mankiw, 2014).
However, let consider that the price increases from P* to the point of P1. This increase in the level of price directs the way towards diminution of the overall quantity demanded. As such, demand lessens for two different reasons. The subsisting purchasers limit their overall demand. As such, for people at the edge, a slight increase in the price of a good makes it les affordable for the buyers who eventually leave the specific market. As a consequence, this generates excessive supply condition in the market. Nevertheless, in order to curb the excess amount of supply, diverse sellers might consider a descending revision in price in the particular market (Baumol & Blinder, 2015). Thus, it can hereby be mentioned that price again gets back to P*. Let us hereby consider in this case that price decreases below the level of P*. Owing to low level of price, purchasers increase their level of demand (Baumol & Blinder, 2015). Contrarily, lower level of profitability dampens the spirits of the producers and these producers subsequently lessen the amount of supply. There might be disparity between the amount of demand and supply and this might lead to excessive demand in the specific market. However, in order to equalise the overall demand with the present level of supply, price can be enhanced specifically. Thus, it can be said that adjustments need to carried out continuously till price level reaches to the level of equilibrium. Essentially, this can help in explicating process of attainment of stable equilibrium specifically in a free market (Baumol & Blinder, 2015).
However, it is important to evaluate aggregate demand (AD) as well as management supply (AS) for explaining the overall macroeconomic stability. As rightly indicated by Du Toit et al., (2014), macroeconomic consistency relies on different macroeconomic parameters. As such, aggregate demand (AD) as well as aggregate supply (AS) helps in the process of ascertainment of gross domestic product (GDP) in a particular economy. In this case, the economy is said to remain in a steady/consistent position in case if there remains stability in the level of both price as well as in come.
Figure: Macroeconomic Stability
Attainment of Stability in the Australian Economy
Australian economy is capitalist in nature. The economic system along with major economic decisions of Australia is mainly driven by particularly market operations instead of process of central process of economic planning. Essentially, movements in price in regional as well as transnational market help in understanding price indication to diverse resource owners. However, this indication of price to different owners of resource founded help in satisfaction of obligations of the people and maximization of gains (Biondi & Zambon, 2013). Let us say, share prices assist in carrying out investment pronouncements. Particularly, the overall consistency is necessarily for the Australian economy that is evaluated by assessing different indicators that include Gross Domestic Product (GDP) as well as level of price.
Gross Domestic Product
Figure: Gross Domestic Product (GDP) trend in Australian economy
Analysis of reports on GDP of Australia reflects a steady movement in the gross domestic product (GDP) in the past five to six years. Although fluctuations can be observed in the GDP, drastic alteration is not visible from the GDP trend (Bernanke et al., 2015). During the year 2006, the gross domestic product (GDP) was recorded to be necessarily USD 853.75 billion. However, this GDP has increased to USD 1204.61 as recorded during the year 2016. Nevertheless, the gross domestic product is recorded to be the highest during the year 2013. Thereafter, the GDP progressively decreases although no dramatic transformation can be registered.
Level of Price
Level of price in a particular economy is reflected precisely by the rate of inflation. Similar to GDP, the rate of inflation in Australia can also be considered steady and is said to have comparatively diminishing trend (Borio, 2014).
Specific Instrument that can be utilized for stabilization
During shocks in the business cycle, the government in Australia utilizes different policies of stabilization for reinstating consistency. However, the two primary instruments for stabilization include the following:
- Automatic Stabilizer as well as
- Discretionary Stabilizer (Mankiw, 2014).
As rightly indicated by Boland (2014), automatic stabilization can be regarded as a mechanism of stabilization developed on the basis of government tax or else other forms of expends. Essentially, the automatic stabilizers, affects aggregate demand in a countercyclical manner without exerting influence on the federal treasures or else other federal policies. In essence, the government budget routinely adjusts and continuously switches between a deficit and surplus based on whether the entire economy is in the stage of economic boom otherwise economic slowdown. Diverse tax receipts counting PAYG, Goods and service tax (GST), company tax and many others are major instruments that can be utilized for automatic stabilizer (Nicholson & Snyder, 2014).
Discretionary stabilizers are also referred to as structural stabilizer. In essence, discretionary stabilizer requires certain vital alterations in the budget of the government. Essentially, this consists of introducing a novel category of tax, enhancing or declining expends of the government in different areas such as education sector, infrastructure or else for defence purposes (Baumol & Blinder, 2015). These discretionary stabilizers are necessarily used in times of severe depression or boom at the time when automatic stabilizers fail to stabilize the entire economy.
The current study analyses the specific idea of establishment of steady economic equilibrium with reference to both microeconomic as well as macroeconomic context. The study also helps in understanding microeconomic steadiness marketing into consideration constancy from the perspective of a single market whereas macroeconomic stability takes into account the entire economy on the whole. The level of constancy in the Australian economy is studied in this report. Analysis of the findings reveals that the nation Australia depends on particularly a free and capitalist system of economy. GDP as well as level of prices in the economy can be considered to be at a stable position. Nevertheless, in diverse stages of the business cycle, economic stability might drop, and subsequently government might intervene by means of diverse stabilization instrument.
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