Economic Supply and Demand

A system dynamics monograph on supply and demand, prepared for the MIT System Dynamics in Education Project under Jay W. Forrester and released for non-commercial educational copying. Demand is treated as a rate of purchase limited by taste and by ability to pay, supply as production against inventory and desired inventory, and price as the information link between them; the paper then studies the interaction of the two, the delays in production capacity and employment that make the response lag, and the oscillations a market produces when it over-corrects. Each model is given as a causal diagram with its rate and level equations and simulation runs, and the final section sets out further explorations, including how the effect on price drives the system away from or back to equilibrium.