Question

Please advise what are "Unstable equilibrium" and "stable equilibrium"?

Unic Technology is a mainframe computer retailer. In an effort to increase profit, Unic increases the price on their computers by 10%. Unfortunately, their market analysis was incorrect, and more customers left than they expected. As a result, Unic decided its best option was to lower the prices back to the original value. Upon doing so, all the customers returned.

This situation most accurately represents which economic principle:

1. Unstable equilibrium

2. Stable equilibrium

3. Partial equilibrium

Answer 1

It represents Stable equilibrium.

stable equilibrium - If price is above the equilibrium then there will be surplus in the economy and there will be downward pressure on price as a result price goes back to the equilibrium position, similarly if price is below equilibrium level there will be upside pressure on price and it goes back to the equilibrium level.