Probability Economics: Market Price in The Price Space

32 Pages Posted: 12 May 2013 Last revised: 22 Sep 2023

Date Written: May 11, 2013

Abstract

What is market price? This question is the focus of attention in the present essay that is the part of the series devoted to elaboration of probability economics. This concept is defined as a new quantitative method for description, analysis, and investigation of both model and real economies and markets. In the first part, natural and intelligible procedures were laid down for constructing probabilistic supply and demand functions in many-agent, many-good markets of an economy existing in a normal stationary state. This was done within the framework of the Stationary Probability Price Space Model. In the present article, we study the central issue of any economic theory using this model, namely the question of the nature of market prices. We have obtained the following main result of the work. In the context of this model the term market price has changed its meaning. By its very nature, market prices are probabilistic. Under certain conditions they can be defined as local highs or maxima of the many-dimensional deal function, which is the product of the supply and demand functions of a many-agent and many-good market. It is shown that market prices do not depend at all on the total market supply and demand. Particular emphasis is placed on the comparative analysis of numerical results of the model for various model markets with known empirical facts. It is also shown that market prices for one-good markets are intersection points of the supply and demand elasticity curves. In the end of the article we give the set of partial differential equations for the calculation of market prices in many-agent, many-good markets. This article is intended for all interested in the background of economics, particularly in the axiomatic basis for modern economic theory.

Keywords: demand and supply, market price, stationary probability model, modeling of economic system

JEL Classification: D00

Suggested Citation

Kondratenko, Anatoly V., Probability Economics: Market Price in The Price Space (May 11, 2013). Available at SSRN: https://ssrn.com/abstract=2263708 or http://dx.doi.org/10.2139/ssrn.2263708