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Price Formation: General Equilibrium

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Economics of Markets

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Abstract

This chapter extends the theory to multiple markets where, as in classical economics, wealth is explicitly treated as one of the determinants of reservation prices in market realizations.

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Notes

  1. 1.

    For a recent multiple-market model of double-auction dynamics, see Asparouhova et al. (2020).

  2. 2.

    Since the horizon \(T\) is assumed given, it will be usually omitted. Yet it is important to keep in mind that the economy’s supply and demand apply to a given period \(\{ 0,...,T\} ,\) which includes the case where the limit \(T = \infty\) is considered. In all rigor, we should index the distribution of unit by \(T,\) writing, for example, \(M_{T}\) and \(N_{T} .\)

  3. 3.

    This is a standard property of line integration. See, for example, Apostol (1969, ch. 10).

  4. 4.

    A technical detail is omitted in the differentiation under the integral (or expectation) sign.

  5. 5.

    To wit: “A market…is theoretically perfect only when all have perfect knowledge of the conditions of supply and demand, and the consequent ratio of exchange; and…there can only be one ratio of exchange of one uniform commodity at any moment” (Jevons (1871 [1888], p. iv).

  6. 6.

    For a review of the neoclassical models of price adjustment and stability, see Negishi (1962), Hahn (1982), and Fisher (2013). Hahn, in his review of neoclassical price dynamics, said: “we shall have to conclude that we still lack a satisfactory descriptive theory of the invisible hand” (Hahn, 1982, p. 746).

  7. 7.

    For a review of SMD theorem and related aggregation literature see Shafer and Sonnenschein (1982). See also Kirman (1989) and Rizvi (2006).

  8. 8.

    Hotelling (1932).

  9. 9.

    In the mathematical theory of dynamics, an equilibrium, when it exists, derives from a dynamical representation of a system: it is not decided a priori and rationalized a posteriori.

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Authors and Affiliations

  1. Economic Science Institute, Chapman University, Orange, CA, USA

    Sabiou M. Inoua

  2. Economic Science Institute, Chapman University, Orange, CA, USA

    Vernon L. Smith

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Correspondence to Sabiou M. Inoua .

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Inoua, S.M., Smith, V.L. (2022). Price Formation: General Equilibrium. In: Economics of Markets. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-08428-7_6

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  • DOI: https://doi.org/10.1007/978-3-031-08428-7_6

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