ABSTRACT
The central argument for laissez-faire economics is the belief in a self-stabilizing market. There are three basic models for portrait in self-stabilizing market: the static linear supply-demand curves; the optimization model with convex utility and production functions; and the linear stochastic model of random walk and geometric Brownian motion. Methodologically speaking, the essential difference is between a single equilibrium state in linear models and multiple equilibrium states in nonlinear models. We will discuss linear stability in this section, and leave structural stability until section 2.3.2.
