Stable and Unstable Equilibrium

When the demand and quantity deviate from their equilibrium levels, the market forces will interact with each other to bring the price and quantity back to its equilibrium level. As long as this is possible the equilibrium is labelled as stable.

The equilibrium will be stable as long as the supply curve cuts through the demand curve from above, irrespective of whether the supply curve slopes upwards or downwards. The equilibrium will be stable in both the situations below:

However, there are some situations where the equilibrium is unstable. For example, when the slope of the supply curve is less than the demand curve or when the supply function is non-linear.

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Fundamentals of Economics

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In this learning path, you'll explore the fundamental dynamics of supply and demand, examining how firms operate across different market structures. You'll study macroeconomic principles including output measurement, price levels, and growth factors, while understanding business cycle fluctuations and policy responses. The path covers monetary and fiscal policy impacts, concluding with international trade dynamics and capital flows.

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