A More Practical Method for Explaining Equilibrium

Abstract

The aim of this study is to suggest a more practical method for explaining market equilibrium in a two-dimensional risk-return world. Its main difference from textbook contents is to define, in both qualitative and quantitative ways, the environment or the system factor and treat it as an endogenous variable. Once the two-dimensional framework that is capable of managing uncertainty and environmental relationship can be reasonably established, a greater number of economic issues can be effectively investigated. As to the traditional concept of economic equilibrium, its importance can be significantly reduced.

Economic Natural Laws and Economics

“…Reference [1] proposed that when relation and risk factors are combined and applied to the MPT, the pricing model for real goods is…”

“…For any economic entity i, the market growth rate i r  is linked to three supply variables including g R  as the real growth rate of its system variable, c R  as the real growth rate of its complements or substitutes, and i R  as the real growth rate with respect to i r  . With the system variable g R  , the sum of all three coefficients is a strict relationship of 1 2 3ˆˆ1…”

“…As the mainstream asset pricing model, the CAPM is a univariate model, which exogenises the system or the economic environment variable g R  and replaces the real variable i R  with a market portfolio variable m r  in Equation (3) 3 . Because the coefficient of m r  has no other balancing force, it may be excessively inflated by 1 "Although natural scientists serve as the leading informants of ecological problems, they are not well equipped to explain a very basic puzzle. How could such a widespread set of dire ecological problems-which nobody intended and nobody wants-emerge and persist, despite a massive increase in international environmental awareness and regulation over the past forty years?…”

“…However, nature is necessary to us; continuing to damage it regardless of consequence is unwise. Microeconomic and macroeconomic natural laws were introduced by [1], but the global economy is not operating in compliance with the microeconomic natural law. If ignorance of the importance and feasibility of the microeconomic natural law is the reason for the global economy to not adhere to it, then more explanations must be provided.…”

“…The second major problem is the inability to endogenise environmental factors in pricing models; instead, they are treated as only sources of externalities. Our ecosystem has already been substantially damaged, but the focus of debate remains on assigning blame and identifying the culprit instead of endogenising environmental factors 1 .…”