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Stability analysis

Updated: Aug 20, 2021

An analysis of the behaviour of the variables of an economic system when it is out of equilibrium, concerned specifi­cally with the question of whether they will tend to converge towards or diverge from their equilibrium values over time. For example, the Cobweb theorem analyses the time-path of price and output in an agricultural market, and establishes conditions under which price oscillations will diminish through time as price converges to its equili­brium. Clearly, since time must enter explicitly, stability analysis forms an important part of economic dynamics.

Reference: The Penguin Dictionary of Economics, 3rd edt.

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