Re: Supply & Demand
Source Marshall Feldman
Date 10/08/24/12:00

SEVERAL POSTS on this list have recently mentioned physics envy. Even for a pure NC economists, one would think modeling disequilibrium would not be so hard.

Start with the usual cobweb theorems and include a variable for time to adjustment. Make it fancy by including information scarcity and search costs as exogenous variables. Let E be the expected time to achieve equilibrium after a disturbance.

Now add technological innovation as a stochastic process with a Poisson distribution to model the arrival rate of innovations. Each innovation shifts the product supply curve to the right. Let D be the expected time for such technologically driven shifts to occur.

Now combine the two sub-models. When D < E, permanent disequilibrium is likely to occur.

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