Authors: Benjamin Chung
In an effort to better understand the mechanisms underlying finance and economics, this investigation simplifies an economy to its most basic form —an economic space of assets consisting of atomic equity and debt. By applying the concept of diffusion to debt, the corresponding behaviour of equity was investigated. The findings reveal that debt and equity cannot both diffuse or concentrate simultaneously at the macroscopic scale of a market-driven economy, and that equity only concentrates in an economy experiencing robust economic growth. Additionally, if diffusion is a required assumption for homogenous mixing, and debt transforms into equity with some probability, then an economic system can be modelled as a system of competing viral infections within a susceptible population, or market. It is shown how parameters of infection correspond to measures of sales and marketing, suggesting that the product/business lifecycle curve is very likely an infection curve. This Economic Infection model provides a unified framework that can incorporate metrics used in sales and marketing —such as convserion rate, churn rate, engagement rate, etc— to forecast revenue and market share growth for market competitors whose values can be estimated. Also, a preliminary decomposition of Price Elasticity of Demand within this economic infection framework reveals multiple contributing elasticities (including the Price Elasticity of Supply) which producers and retailers can manipulate to shift PED more positive or negative. These decomposed elasticities align with several known pricing strategies aimed at driving sales quantities, with one particular elasticity identified as a possible driver of demand-pull inflation.
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