Probabilistic Economic Theory - страница 14

Conventionally, we will describe the state of the market at every moment in time by the set of real market prices and quantities of real deals which really take place in the market. As we can see from the Fig. 1 real deals occur in the market in our case only at the moments t_>1^>Eand t_>2^>Ewhen the following market equilibrium conditions are valid (points E_>i  in Fig. 1):

In this formula, we used several new notions and definitions, whose meanings need explanation. Let us make these explanations in sufficient detail in view of their importance for understanding the following presentation of physical economics. First, in contemporary economic theory, the concept of supply and demand (S&D below) plays one of the central roles. Intuitively, at the qualitative descriptive level, all economists comprehend what this concept means. Complexities and readings appear only in practice with the attempts to give a mathematical treatment to these notions and to develop an adequate method of their calculation and measurement. For this purpose, the various theories contain different mathematical models of S&D that have been developed within the framework. In these theories, differing so-called S&D functions are used to formally define and quantitatively describe S&D.

In this book, we will also repeatedly encounter the various mathematical representations of this concept in different theories, which compose physical economics, namely, classical economy, probability economics, and quantum economy.

Even within the framework of one theory, it is possible to give several formal definitions of S&D functions supplementing each other. For example, within the framework of our two-agent classical economy, we can define total S&D functions as follows:

Thus, we have defined at each moment of time t the total demand function of the buyer, D_>1^>0(t), and the total supply function of the seller, S_>1^>0(t), as the product of their price and quantity quotations. These functions can be easily depicted in the coordinate system of time and S&D [T, S&D], as it was done in Fig. 2 displaying the so-called S&D diagram. As one would expect, the S&D functions intersect at the equilibrium point E. It is accepted in such cases to indicate that S&D are equal at the equilibrium point. We consider that it is more strictly to say that equilibrium point is that point on the diagram of the trajectories, where these trajectories intersect, i.e., where the price and quantity quotations of the buyer and the seller are equal. But that in this case S&D curves intersect is the simple consequence of their definition equality of prices and quantities at the equilibrium point.

The last observation here concerns a formula for evaluating the volume of trade in the market, MTV(t_>i^>E), between the buyer and the seller where they come to a mutual understanding and accomplishment of transaction at the equilibrium point E_>i. It is clear that to obtain the trade volume (total value of all the transactions in this case), it is possible to simply multiply the equilibrium values of price and quantity that are derived from the above formula. The dimension of the trade volume is of course a product of the dimensions of price and quantity; in this example this is