Figure 8.11: Dampened Price Shock and Stable Equilibrium
This figure illustrates a market's return to a stable equilibrium following a price shock. It depicts a scenario where a minor, temporary increase in demand is not large enough to eliminate the excess supply, initiating a dampened negative feedback process. This results in smaller price adjustments as the market corrects back to its original equilibrium price. The corresponding Price Dynamics Curve is shown to be steeper than in other negative feedback examples, reflecting these smaller adjustments, yet it remains flatter than the 45-degree line, confirming the overall stability of the market equilibrium.
0
1
Tags
Economics
Economy
Introduction to Macroeconomics Course
Ch.8 Economic dynamics: Financial and environmental crises - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Related
Dampened Market Correction via Negative Feedback Following a Minor Expectation-Driven Demand Shift
Figure 8.11: Dampened Price Shock and Stable Equilibrium
A market for a particular good has a long-run equilibrium price of $50 per unit. A sudden, temporary shortage causes the price to spike to $70 in one period. In the following periods, the price is observed to be $60, then $55, then $52.50. Which of the following statements best analyzes this market's behavior?
Analyzing Market Stability with a Price Dynamics Curve
The Mechanism of Stable Equilibrium
Contrasting Market Stability and Instability
If a market's price dynamics are represented by a curve that is steeper than the 45-degree line, any small deviation from the equilibrium price will trigger a self-correcting process that returns the price to its original level.
Match each market characteristic or event with its correct implication regarding price stability.
A market is in a stable equilibrium when a temporary supply disruption causes the price to jump above its long-run level. Arrange the following events in the correct chronological order to show how negative feedback restores the market to its original equilibrium.
For a market equilibrium to be considered stable, any price deviation must trigger a corrective process. This is represented graphically by a price dynamics curve that is flatter than the 45-degree line, which ensures that ______ feedback will guide the price back towards its initial level.
Analyzing Price Dynamics with a Linear Model
In a particular market, the long-run equilibrium price for a product is $100. Market analysts have determined that after a price deviation, the price in the next period adjusts to close half the gap between the previous period's price and the equilibrium price. For example, if the price were $110, the gap is $10, so the price would fall by $5 to $105 in the next period.
Suppose a temporary supply disruption causes the price to jump to $140. Based on the described adjustment process, what will the price be in the subsequent period, and what does this indicate about the market's equilibrium?