SEMAINE D'ÉTUDE SUR LE ROLE DE L’ANALYSE ECONOMETRIQUE ETC. 
1 
the quantity demanded, y,, is a homogeneous linear stochastic 
function of the price, y;, and of an exogenous demand variable, 
x, ; the quantity supplied, y,, is a homogeneous linear stochastic 
function of the price, y;, and of an exogenous supply variable, 
x,; under free market conditions the quantity supplied is equal 
0 the quantity demanded; and under price control the actual 
price is equal to the price fixed by the government, x;. In 
ts reduced form this system can be written as 
IL. I, 
In (IL.1), the a’s and b’s are demand and supply parameters, 
the e’s are disturbances and À is a number which takes the 
value 1 under free market conditions and o under conditions 
of price control. 
In terms of the diagram, the model consists of the first two 
equations in (II.1) and the purpose of the black box is to 
ensure the appropriate value of À at any time. If the model 
was established under free market conditions, it will operate 
initially with A =1. But if market conditions change to a state 
of price control, the black box must find this out and switch 
over to A=0. As indicated in the diagram, it does this by 
continuously comparing the price calculated by the model with 
the price actually charged in the real world. If they differ, 
it changes the value of A. For under free market conditions 
the actual price and the model price will be the same, but if 
price control is introduced, the two prices will, in general, 
diverge unless A =1 is changed to A=0. With this change, the 
actual price and the model price will be the same as long as 
price control persists. If, however, price control is abolished. 
"11 Stone - pag. 
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