Abstract for: The System Dynamics of the "Invisible Hand": Simulating a Neoclassical Economy
It is maybe not exaggerated to state that the relation between system dynamics and economics (and related models) fluctuated between ignorance and open hostil-ity in the past. One plausible explanation for this observation could be a lack of mutual understanding, which this article aims to address. The article sets out with dynamic hypothesis about economic equilibrium, a central concept in neoclassical economics. It is argued that the emergence of an economic equilibrium, i.e. a balance between supply and demand, depends on the relative speed of change within the economic system itself and its economic environment. A model exhibiting such behaviour would arguably conform to basic principles of sys-tem dynamics and might pave the way for a fruitful adoption of elements of micro-economic theory in system dynamics models. The article consists of a brief and (hopefully) accessible exposition of neoclassical theories of consumption, production and general equilibrium; a presentation of a numerical general equilibrium model and the equivalent system dynamics model, highlighting the relation between the models; an analysis of simulation and sensi-tivity results; and conclusions with respect to the dynamic hypothesis stated at the outset, the potential usefulness of the SD model for applied analysis and some more theoretical conjectures.