#cfa #cfa-level-1 #economics #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4 #the-market-mechanism-iterating-toward-equilibrium
Observation suggests that most markets are characterized by stable equilibria. Prices do not often shoot off to infinity or plunge toward zero. However, occasionally we do observe price bubbles occurring in real estate, securities, and other markets. It appears that prices can behave in ways that are not ultimately sustainable in the long run. They may shoot up for a time but ultimately, if they do not reflect actual valuations, the bubble can burst resulting in a “correction” to a new equilibrium.