Microstructure of a Quantity Adjustment Economy

This chapter introduces the microstructure of the quantity adjustment economy, which is studied in Yoshinori Shiozawa, Masashi Morioka, and Kazuhisa Taniguchi’s Microfundations of Evolutionary Economics, Springer, 2019. A quantity adjustment in the economy means that the economy adapts to fluctuations in demand by adjusting not the price but only the production quantity. Production activities are performed in sequence: ordering of raw materials, arrival of raw materials, input of those materials, manufacturing, product output, and shipping of the product. The order of these activities is never reversed, and the activities are never performed simultaneously. The order of these activities is maintained, and the quantities are adjusted. The entire economy, in which many entities producing many kinds of goods execute production activities over time, can be described by simultaneous difference equations; moreover, the stability of the entire economy depends on the eigenvalue of a high-order matrix. Therefore, the evaluation of eigenvalues of the matrix is the key point of this study. In this chapter, we show that different conclusions can be obtained between a model for one kind of good and a model for many kinds of goods by evaluating eigenvalues. Furthermore, we perform a simulation of a nonlinear \((S, s)\) inventory control policy model and confirm that its basic properties are stable and convergence is possible.