Away from equilibrium

What happens if the price is not the equilibrium one? The model explains why the market spontaneously tends to return towards $p^\ast$.

Observation — What happens away from equilibrium

• If $p>p^\ast$: $Q_s>Q_d$, there is an excess of supply, unsold producers lower the price.
• If $p<p^\ast$: $Q_d>Q_s$, there is an excess of demand, consumers push the price upwards.

The equilibrium price is therefore a stable state, reached spontaneously by the market under ideal conditions (perfect competition, complete information). In real scenarios — monopolies, oligopolies, informational asymmetries — the equilibrium may not exist or may not be stable (the subject of advanced microeconomics).

Links

Topics: Linear systems
Concepts: Supply and demand · Equilibrium price
Skills: Interpret graph · Model