Answer to Question #227973 in Microeconomics for Graylin Lapi

Question

Discuss the following statement: “Since supply and demand curves are always shifting due to various demand and supply-side disturbances, markets never actually reach an equilibrium. Therefore, the concept of equilibrium is useless.”

 

Answer 1

Solution:

While the notion that markets never reach equilibrium is most likely debatable, the concept of equilibrium is still significant regardless of whether the markets ever attain or reach equilibrium. The concept of equilibrium is critical since it provides an easier way to forecast or anticipate how market prices and quantities will change or shift as exogenous variables change. Therefore, while a particular equilibrium price may never be reached, let’s say due to the shifts in supply or demand schedule as the market moves toward equilibrium, we can easily predict whether prices will be falling or rising when exogenous market factors change as we move toward equilibrium. Therefore, as exogenous variables continue to change, we can continue to predict the direction of change for the endogenous variables, which is not “useless” but essential.