The importance of timescales: simple models for economic markets

This paper considers a simple model of an economy. The economy consists of agents. Each agent produces exactly one good. The good is sold on the market and the agent uses the resulting money to buy many other goods. All agents have the goal to maximize their own utility, which consists of a positive contribution from consumption, and a negative contribution from work. The problem for the agent thus is to balance work and consumption. In contrast to many other economic models, this model prescribes the process in all completeness. The paper looks both at analytical solutions and at simulation results. A particularly important results is that a well-defined market only emerges when prices adapt on a much slower time scale than consumption. This makes clear that a functioning market does not just emerge by itself.