Time-constant Model of Market Adjustment Process based on Physical Functions

Abstract

The concept of time constant is essential in considering a sustainable social system in which the market economy is in harmony with social common capital such as local communities and nature. Therefore, we have developed a time-constant model of market adjustment process based on physical functions. In this paper, we propose an analogy with physical functions and economic domain, where flow is goods flow and effort is price. This allows us to model the economic system in which demand and supply are regarded as masses and market as a spring. Furthermore, this model can be transformed into a time-constant model by normalizing inertia and elasticity by losses in demand and supply. Numerical results on the effects of demand, supply, and market time constants on the market adjustment process are presented for the initial conditions of excess demand and excess supply.