Showing papers on "Fixed price published in 1978"
TL;DR: In the context of a model developed by Dreze, the authors describes more precisely the different states of the markets (excess supply or excess demand) that may occur near a competitive equilibrium, where prices are fixed at a value that does not achieve equilibrium of supply and demand in the classical sense.
Abstract: A number of recent works have addressed the problem of describing the allocation of resources in an economy where prices are fixed at a value that does not achieve equilibrium of supply and demand in the classical sense. In the context of a model developed by Dreze, the purpose of this paper is to describe more precisely the different states of the markets (excess supply or excess demand) that may occur near a competitive equilibrium. A general analytical picture is obtained, which associates with each state of the markets the region of the price domain where it prevails. This allows us to point out an important difficulty which arises in the local comparative statics of this class of model: local unicity is not warrantied, that is, there may exist price systems very close to some competitive price, for which all the fixed price allocations are far from the competitive allocation. Examples are shown in the macroeconomic model (two aggregate agents: households and firms, and three goods: money, output, and labor); necessary and sufficient conditions for local unicity are given in this context. They require that all commodities be Hicks-substitute for the consumer, which is another way of saying that both the marginal propensities for consumption and leisure are positive and smaller than one. On the other hand, assuming local unicity, one can look for the implications of the foregoing results for the long-run determination of prices. It is easy to show that, if the economy always reaches a fixed price allocation, an increase of the price of one commodity near the competitive equilibrium is always to the advantage of the sellers and to the disadvantage of the buyers. This suggests that the determination of prices should take the form of a struggle between buyers and sellers in each market.
38 citations
TL;DR: In this paper, the authors studied the number of fixed price equilibria and their continuity with respect to the price system in an exchange economy and showed that the graph of the equilibrium correspondence, when prices and initial endowments vary, is a piecewise continuously differentiable manifold.
30 citations
TL;DR: In this paper, a simple model of an exchange economy with two non-durable commodities is considered, and the authors show that if the agents in the economy have a perfect foresight of the dynamic behaviour of the market, in a neighbourhood of any stable Walrasian equilibrium, the dynamics of the system should take the form of a struggle between the buyers and the sellers for the settling of the price.
Abstract: Recent works in the field of disequilibrium analysis have increased our understanding of the functioning of the economic system when transactions take place at prices that may not achieve the equilibrium of supply and demand as the classics understood it. The works of Benassy [2] and Dreze [4] show us a way of representing the allocation process when prices are assumed to be rigid in the short run, in the context of the " fixed price method " of Hicks [5]. The foregoing studies allow us to look at the dynamics of an economy where prices would be fixed at each period, but possibly moving from period to period. In this context, one must search for the dynamic forces which are underlying the disequilibrium allocations. A question of interest is then to ask whether these forces are bound to drive the system towards a Walrasian equilibrium. This note brings a first answer to a part of this general problem. A simple model of an exchange economy with two non-durable commodities is considered. In a neighbourhood of a locally stable Walrasian equilibrium, a result in comparative statics is established: the agents on the short side of the market always prefer the Walrasian allocation to the disequilibrium allocation, while, if trade actually takes place, there exists a disequilibrium allocation which is strictly preferred to the Walrasian allocation by all the agents on the long side of the market. This suggests the following interpretation: if the agents in the economy have a perfect foresight of the dynamic behaviour of the market, in a neighbourhood of any stable Walrasian equilibrium, the dynamics of the system should take the form of a struggle between the buyers and the sellers for the settling of the price. The paper is divided into two sections. In the first one, the results are stated and their economic interpretation is discussed. The second section contains the proofs.
8 citations