Monday, April 27, 2020

Supply-Chain Collapse Puzzle

Suppose we had some Sraffian model of an economy, ( 1 + R ) A p = p with only basic commodities. There is a cycle of production at time t, then the goods go to market at time t + 1, then production starts again at t + 2, and so on.

What happens if the supply chain for one sector collapses completely? In the sense that the product cannot get to market after production. How do prices of commodities change in response to this shortage? What about the rate of profits: how does it change?

What happens if we extend the system to allow non-basic commodities? How do their prices alter?