A model of slow equilibrium dynamics for economic expansion (Q1111452)

The author studies the general equilibrium (and its dynamics) of a representative consumer-economy with production. By assuming homogeneity on the side of utility functions it shows how rates of production can be obtained from the uniquely determined equilibrium prices of the corresponding exchange economy. By means of four examples the dynamics of the vector of initial endowments is then studied which is defined by net production and its dependence on the equilibrium prices corresponding to a given state of initial endowments. The four examples show that there is a tendency towards a linear evolution of quantities with constant prices. As is known, however, the main source of multiplicity of equilibria lies on the consumption side, not on the production side of the economy. Furthermore, introducing a production period T into the model should give rise to time-indexed commodities (for \(T>0)\). Both problems are not considered in this paper.