ABSTRACT

This chapter examines the existence, uniqueness, and stability of possible quasi-equilibria, using two formulations of the Walrasian excess demand hypothesis of price change. It also examines the behaviour of the firms in region DNRC, where all markets clear. The chapter argues that, despite the general market clearing, nominal prices may adjust, due to competition between identical, price-setting firms, with resulting changes in the real prices. It evaluates the behaviour of the resource suppliers, who are assumed to hold resource stock as one asset in a portfolio. The chapter investigates a price adjustment formulation which includes elements of "cost-push" price inflation, and which can model "money illusion" in the factor input markets. It also evaluates the implications of their expectations and behaviour on the stability of the model and looks for micro-foundations for the Hotelling principle of efficient, intertemporal allocation of non-renewable resources.