A Model of Accumulation

Abstract

Consider the most familiar piece of economic analysis: on the plane surface of the page of a text-book two curves are drawn, representing the flow of supply of a commodity per unit of time and the flow of demand for it, each as a function of price. They cut at the point E, where price is OP (on the y axis) and quantity traded OQ (on the x axis). We are accustomed to say that this represents a stable position of equilibrium if, at prices above OP, the supply curve lies to the right of the demand curve. What does this stability of equilibrium mean? Clearly it means that E is a possible, and the only possible, position of equilibrium in the situation depicted by the curves. Does it mean any more than that? It is often said that the picture shows that when price is above OP, it tends to fall towards E, and when it is below, to rise towards E. But this is by no means either clear or convincing.