In this section, Hicks briefly outlines how the laws of change of the price system will be derived from stability conditions. In the context of an exchange system, stability means that slight movements away from an equilibrium position will tend to cause reactions that push the system back toward equilibrium. Under perfect competition, a rise in price tends to cause supply to exceed demand, which will tend to cause the price to fall. Similarly, a fall in price tends to cause demand to exceed supply, which will cause the price to rise. These relationships between supply and demand constitute the stability conditions for an equilibrium in an exchange system.
Since the theory of exchange is based on the theory of demand, Hicks proposes to check his investigations of the stability of exchange for consistency with the theory of demand as worked out in Chapters II and III. From the stability conditions, Hicks will deduce laws of change, i.e. "rules about the way in which the price-system will react to changes in tastes and resources." This investigation (still of a pure exchange economy) will occupy the eight sections of Chapter V. In Chapter VI he will begin to examine markets with production.
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