Vignette for "Uncertainty Structure of Dynamic Models: Capturing Prey and Demand with Predator and Supply"

[hyunjimoon]

Q. What are the reasons we cannot think of prey as supply and predator as demand? Causal relationships are the key: rise of prey leads to rise of predator and rise of demand causes rise of supply, not the other way around.

[jandraor]

When modelling supply & demand, we need to include price. Price is the element that coordinates the interaction between supply & demand. In more fancy terms, the element that regulates the market (under certain assumptions). For instance, an increase in demand leads to an increase in price, which in turn leads to an increase in supply because it is profitable to produce more. Likewise, an increase in supply leads to a decrease in price, which in turn results in an increase in demand.