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Analyzing States of Market Stability
Consider the two following scenarios:
Scenario A: For the past five years, the market for handmade wooden chairs in a small, isolated town has been unchanged. The single local artisan produces 10 chairs per month, and all 10 are consistently sold at a price of $150 each. The artisan has no plans to change production, and the town's population and preferences for these chairs have not shifted.
Scenario B: A technology company releases a new video game console. For the first three months, demand far exceeds supply, with stores selling out immediately and a large resale market emerging. In response, the company doubles its production. After six months, supply and demand are balanced, and the price stabilizes at the manufacturer's suggested retail price. One year after launch, a rival company releases a more powerful console, causing sales of the original console to decline sharply.
Analyze both scenarios. Which scenario, or which specific period within a scenario, best represents a self-perpetuating, stable outcome with no internal tendency to change? Justify your answer by explaining the key characteristics of such a state and identifying any external forces that cause change in either scenario.
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