An Introduction to Economic Dynamics

2 THE COBWEB MODEL

DOI: 10.4324/9780429324406-2

2.1 ECONOMIC PROBLEM

Markets are the fundamental organizing institutions of a modern economy. Every market, be it for potatoes, labour or financial assets, enables the coordination of decentralised decision making by bringing together disparate buyers and sellers of goods and services. The study of individual markets and the decision – making process of buyers and sellers fall in the realm of microeconomics. The traditional neoclassical approach describes the decision-making process of buyers and sellers such as households, firms or governments using the analytical framework of utility or profit maximisation.¹ The description rests on various assumptions such as perfect competition, i.e. ...