Stable Economic Equilibrium Free Samples †MyAssignmenthelp.com

Question: Discuss about the Stable Economic Equilibrium. Answer: Introduction The Australian economy depends on the market- based system in resource allocation, where consumers are engaged in mutual transactions in the market. The governmental intervention is minimal. The classic demand and supply model could be used to explain the price changes and resource allocation and their effect on the market. In general, the Australian government adopts policies that maintains and increases the growth rate to promote for improved levels of incomes and living standards (Victorian Curriculum and Assessment Authority, 2017). Explanation of the concept of a stable economic equilibrium The economy is considered in a status of equilibrium, when the demand and the supply are balanced according to the equilibrium price and the equilibrium quantity. Figure (1), shows the status of stable equilibrium in economics, as DD represents the negatively sloped line of demand and SS represents the positively sloped line of supply. The point E represents the equilibrium point, where the supply and demand are in balance. OP is the equilibrium price and OQ is the equilibrium quantity (Ponnusamy, 2017). If the price is above the equilibrium level, then P1B is the quantity supplied and P1A is the quantity demanded. There is an excess supply as the quantity supplied is exceeds the quantity demanded and a surplus quantity in the market represented in AB. The surplus quantity causes a downward pressure on price until it reaches the equilibrium price level where the quantity supplied equals the quantity demanded. If the price is below the equilibrium level, then P2C is the quantity supplied and P2E1 is the quantity demanded. There is a deficit in the market, as the quantity demanded exceeds the quantity supplied, represented in CE1. The deficit of quantity causes an upward pressure on price till it reaches the equilibrium price level (Ponnusamy, 2017). The unstable equilibrium in economics occurs in two cases, first, the negatively sloped supply curve, which rarely occur, when the decreasing costs and increasing production occur simultaneously due to economies of scale, as shown in figure (2) (Ponnusamy, 2017). Figure (2) Figure (3) Second, the positively sloped demand curve, which occurs in the case of giffen goods, where demand increases while the price of the good also increases and the opposite is right, , as shown in figure (3) (Ponnusamy, 2017). Australian economy status regarding the stable equilibrium The Australian economy is growing positively, although, it witnesses a decline in business investment. This level of growth is above the average level of domestic demand. The low level of interest rates pressured the domestic demand upwards. Also, the inflation rate recorded only 1.3%, which is below the central bank targeted rate and which is expected to remain low due to low labor costs and low global market pressure. The level of prices shows stability over 2016, as the price index recorded 90.3 points (Mahyari et al., 2016). Domestic economic stability The domestic economic growth rate in Australia, is expected to be 3.0% to 3.5% a year to promote economic stability (Wong, 2016). Aggregate supply-side factors Australia sustainable rate of growth is limited in its ability to access labor, natural and capital resources. As the level of accessible resources increase, or the aggregate supply factors have improved, then the production capacity will increase and the economy would enjoy the desired growth rate (Wong, 2016). Aggregate demand side factors The spending decision is made by households, government and business, inside the country and outside. The level of aggregate demand affects the rate of growth and the general economic conditions. When the level of aggregate demand increases the economy witnesses a beak, but when it shrinks, the economy witnesses a boom (Wong, 2016). The Australian government policies to ensure economic stability Growing Australias productive capacity through government investment in infrastructure Besides the activities of the business sector, the Australian government also intervenes in the market alone or through its partnership with private businesses. The government provides the necessary infrastructure needed by the business to enable them in producing products and services and operations' expansions. The infrastructure refers to the economic infrastructure, including, roads, dams, power, communication facilities and the social infrastructure, including, health and education services. This intervention efforts by the government are necessary to enable the economy to increase its productive capacity and achieve the desired level of GDP (Wong, 2016). Growing productive capacity by government microeconomic policy or efficiency reforms The Australian government has implemented microeconomic policies during the past two decades. These policies focused on production cost cut and enhancing its use of resources to enable the production of more output from the same level of inputs, which causes increased productivity, aggregate supply and sustainable growth rate (Wong, 2016). According to Wong (2016), the recent microeconomic reform policies of the government, include the following policies: The reform policies of the labor market: The labor market witnessed deregulation, as the traditional system of minimum wages covers only fewer workers. The wage system is determined through negotiations between the worker and his boss or it is decided on a firm by firm basis. The pay level is a function of the employee level of efficiency. This system assists the economy to be more productive and effective. Promoting for strong competition: As it helps in influencing the increase in the aggregate supply and capacity of production. It also promotes for business efficiency through cost cutting among the competitors. Lowering the tax rates: The tax rates on personal income, profits of companies and imports have been reduced and will continue to be reduced. This policy helps in creating financial incentives to business expansions and efficiency improvements. Trade liberalization: Tax cut on imports facilitates the access to resources needed in the production of goods and services with low protection to the domestic market. This policy enables the growth of productive capacity and the rate of growth. Conclusion The economy is considered in a status of equilibrium, when the demand and the supply are balanced according to the equilibrium price and the equilibrium quantity. The Australian economy is growing positively, although, it witnesses a decline in business investment. The domestic economic growth rate in Australia, is expected to be 3.0% to 3.5% a year to promote economic stability. The Australian government also intervenes in the market alone or through its partnership with private businesses. The government provides the necessary infrastructure needed by the business to enable them in producing products and services and operations' expansions. The Australian government has implemented microeconomic policies, which focused on production cost cut and enhancing its use of resources to increase the productivity and aggregate supply. References Mahyari, P., Bittenbinder, A., Ely, C., Bacon, C., Hall, A. (2016). Australian economic and property report. PRD Nationwide. Ponnusamy, S. (2017). Stable and unstable equilibrium. Retrieved from Owlcation: https://owlcation.com Victorian Curriculum and Assessment Authority. (2017). Economics. Australia. Wong, E. (2016). Economic growth and sustainable development. In Macroeconomic aims and goals (pp. 59-109). John Wiley Sons, Inc.