Why does equilibrium in a market tend to be stable? a. It doesn’t.  Observed stability is largely the result of custom, but markets are inherently chaotic.   b. Almost all markets are de facto monopolies.  Monopolists rarely change prices so as not to alert consumers to the possibility of buying goods more cheaply.   c. Government regulations ensure that prices can only change slowly, so that an equilibrium price appears stable in the short run.   d. When the price deviates from the equilibrium price, surpluses or shortages occur.  As market participants act to be better off, they drive the market back to equilibrium.

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Normal and Inferior Goods

Understanding a normal good and an inferior good is important because it tells us what will happen to demand different products during booms and recessions.