Question
Microeconomics Question on Consumer theory
When the supply curve Sx is backward bending and the demand curve Dx is downward sloping as shown in the figure, there are two equilibria M and N, respectively. Which of the following statements is CORRECT?
A
Only M is stable equilibrium
B
Only N is stable equilibrium
C
Both M and N are stable equilibria
D
Both M and N are unstable equilibria
Answer
Only N is stable equilibrium
Explanation
Solution
The correct option is (B): Only N is stable equilibrium