Market Instability and Nonlinear Dynamics

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Abstract
The potential role of nonlinear dynamics in generating market instability is investigated using a simple market equilibrium model of the U.S. dairy industry. The supply function reflects the nonlinear dynamics of the dairy herd, as estimated by Chavas and Klemme. It is shown that, in the absence of any uncertainty, an inelastic demand contributes to market instability and chaos.

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