Market Stability

Market stability is called this way because it does not matter where the model of supply and demand starts, it always goes towards the market balance. This is something positive because it means that the markets correct themselves and if you know where the supply and demand curves are at, you will know what the prices and amounts will be. The fact that the actions of the participants in the market, which are buyers and sellers, take the market towards equilibrium without external intervention, such as what the government does when it needs to regulate something, is very gratifying in this case.

Obstacles in Market Equilibrium: On its own, a market adjusts itself until the price and the amount are determined by the intersection of curves of demand and supply. The equilibrium price of the market has the convenient property that all those that want to buy or sell at that price can do just so.

The market price however, is not always convenient from the political view and frequently governments intervene in the markets to avoid balance from occurring. These interventions occur because some buyers with political influences think that the price is too high or because some sales people that have political influence believe that the price is too low.

Unfortunately, if the government intervenes to help the people that complain, it creates a series of new problems and in some cases, it hurts those that are trying to help.

Ceiling Prices: Sometimes the government intervenes in a market to make sure the price remains under its equilibrium level. Given that the prices under the market equilibrium normally raise, such polices are denominated as price ceilings and what these do is avoid the prices from increasing as much as it would on its own. They reach the ceiling and cannot increase beyond that.