Quantitative Market Economics

(Contents and Summary)

Chapter #

  1. Introduction.
  2. The retail market balance is defined based on a demand function comprising the function variables budget, propensity to consume, inflation, deposit interest rate and technical level – market differentiation and a supply function comprising the function variables profit-VAT, propensity to sell, propensity to keep in stock, inflation, deposit interest rate and technical level of production. These function variables are either measurable or may be given judgmental ratings. Solving the market balance condition yields the number of items turned over, the nominal price or cash price per item, and the total value turnover in the item category. Quantitative estimations of the retail market development following alterations of the magnitudes of the function variables can be made based on the equations.
  3. The market balance equations are used for defining the economic growth as a quotient between capital accumulation and a capital-output ratio whereupon the economic growth is factorized into contributions from productivity, deposit interest rate, and technical level – market differentiation divided by nominal price and inflation rate. The productivity acquires a mathematical form that agrees with empirical data. A value flux matrix in consecutive intervals of time is defined, which allows a full description of the growth of an arbitrary economic system.
  4. The plain market balance condition is enlarged by adding savings deposits, withdrawals, loans, export, and imports to the demand and supply functions yielding a master equation of the buffered market where arbitrary components may be analyzed separately. A buffered growth rate is also defined.
  5. Computer simulations of the domestic market development with emphasis on the market differentiation - technical level, VAT-profit and consumers’ budgets are performed. Numerical examples of VAT-profit scenarios are given.
  6. Investment is defined with reference to savings in the form of production resources. The latter constitute the output in investment while the input from investment takes a form reminiscent of capital returns. The investments constitute a kind of savings that may be linked numerically to the market player’s choices, also depending on the market differentiation – technical level. The latter are used as function variables for expressing an investment-buffered growth rate. The navigability-choice pertaining to the investments in an open (buffered) market context is also defined.
  7. Education constitutes an important prerequisite for the market differentiation – technical development. It is related to savings, budget surplus and the market player’s choices.
  8. The ideal statistical distribution of values on the retail market and of disposable incomes on the labor market is derived consistently with the formulation of the demand and supply functions and corroborated by examples of empirical value distributions. The inflation input as a function variable is retrieved numerically as a function value on the whole market spectrum of values, which further corroborates the formulation.
  9. The statistical distribution of values, the "market spectrum", is linked to the demand and supply functions and used for analyzing the trade flux between two nations of different technical level. The formulation inherently indicates the direction of trade flux and that the nominal price level is higher in the technically advanced country than in the developing country. Also the roles of the interest rates, inflation, and the exchange rates may be examined. The statistical distribution of values inherently indicates the trade flux on the domestic markets as well.
  10. The total money flux on the market is determined with reference to the statistical distribution of values turned over. The part of the money flux that is determined by subsistence – maintenance is held apart, which allows the identification of markets for investments in production facilities and markets for new consumers’ niches and the sizes of these markets. The deficits decrease on the low budget side of the statistical distribution of disposable incomes and the surpluses increase on the high budget side when the market differentiates and the technical development proceeds. Low subsistence – maintenance costs allow wider margins for investments and thereby precipitate this development.
  11. The producing market player catalyses one market flux component due to production and another one due to consumption. These fluxes consist of value proper, time, and money, the units of which are inter-convertible. The flux circuits of production and consumption communicate with the retail markets and various market-buffering factors.
  12. The value flux in the circuits of production and consumption in consecutive budget or fiscal periods lead to value accumulation – economic growth that depend on the function variables of the demand and supply functions. Savings in the form of investment lead to an increased work efficiency, which is defined as a multiple of the time in production. A quantitative foundation for ab initio simulations of a market player operating on a market is laid.

  1. Computer-simulations of the growth on the domestic market when a) a boom is followed by a recession and b) a recession is followed by a boom are made. The simulations are extended to cover several markets, and the growth increment when the domestic market is opened to trade is investigated, also yielding information about investments, loans, and trade flux. The growth increment is analyzed as a function of the variables of the market balance condition, the amount of investments, import quota, exchange rates, and other factors.
  2. The computed value growth on opening the market is analyzed as a function of the work efficiency and it is found that at a certain exchange rate, the money value growth of the domestic assets does not respond to opening. This exchange rate is taken as the one at which the domestic assets are correctly evaluated with reference to the foreign currency.
  3. Inflation is defined in terms of money value depreciation and in terms of a diminished nominal value turnover on the whole market. Factors aggravating or relieving the inflation are identified.
  4. The deposit interest rates are identified as synonymous with returns from capital and investments, which constitutes an important limiting factor in the central bank’s navigability.
  5. A pictorial mechanical model of economic progress is constructed.
  6. The character of the value flux is identified and ascribed to production and consumption niches in geographical or demographic sub-units. The differentiation into niches is equivalent of market differentiation and is favored by the presence of high budgets in a Consumers’ Market economy.
  7. The labor market balance is defined by analogy with the retail market and with similar detail based on a demand function comprising the function variables payroll budget, propensity to pay for work and to hire, inflation, deposit interest rate and labor market differentiation, and a supply function comprising the function variables salary bonus, alternatively income tax, propensity to work, inflation, deposit interest rate and level of professional education. Solving the labor market balance condition yields the number of work hours in production equivalent of employment in the productive sectors, salary, and total salary turnover in the branch. Numerical estimations of the labor market development following alterations of the magnitudes of the function variables can be made.
  8. The foundation is laid for quantitative simulations of the joint retail and labor market development including trade across the borders. Examples of results of such simulations are presented.
  9. The computational approach developed until Ch. 21 is used for an exhaustive analysis of the effects of loans and debts on the domestic retail and labor markets. Both private and public borrowing are examined.

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