Cournot's Economic Model

Introduction

One of the main problems in economics was, and in fact probably still is, to find a way to predict the movements of the price of a product in a market. To be able to accurately describe and analyse an economic system. For example, to calculate the price of a product if the number of potential buyers just increased. The relevance of this problem is quite vast as it is historically and in the present in every economic player’s interest to be able to maximize their profits for which they need to know how the price will react to certain variable movement. This leads to the main problem: how to predict the reaction of the market price to the change of variables that influence it? Specifically, which economic model is the most practical

He lived in 19th century France and based a huge amount of his time to improve the work of his predecessor Antoine Augustin Cournot. One of his main contributions to the science of economics is his published article called Elements of Pure Economics: Or, the Theory of Social Wealth, which was first published in French in 1874. In this article, he developed the first form of general equilibrium analysis, which is even used today (Wood, 1993). He started the model from the simple equations given by Cournot and increased their difficulty and explanatory power and by doing so created the model. The model was one of the first ones to incorporate functions of demand and supply; moreover, in the end it incorporated variations of different demands, money supply, multiple trading parties, credit and other different variables to be able to calculate the price of a good. Furthermore, the main conclusions set by this model that every market has equilibrium and always tends to achieve it (Walras, 1954). By constructing this model Léon Walras wanted to help the society to be able to conduct capitalistic actions more efficiently and for them to know how to influence them. On the other hand, this model had a lot of space for improvement as its limitations consisted of: the models assumed only long run effects, some of its calculations were debatable and most important of all that the model was too difficult mathematically to be practical (Gintis, 2007)This is an old problem in economics as there is a trade-off between a models simplicity and accuracy. In this particular example, the model became too difficult to be used by an average seller or buyer to calculate the market price. In conclusion the model incorporated many aspect of the economy to predict a products price. However it was deemed to impractical at that time, though, in later years, with the coming of the computer age it became much more