Price adjustment models in a production economy

In a simple economy (a produced good and labour), a discrete-time tatonnement process converges only at low rates of adjustment and shows cycles and chaotic behaviour at higher rates, where prices in turn go up and down. The same holds for a sequence of fixed price equilibria, with price adjustment directed by effective excess demands. We look at the case where two markets open consecutively, the labour market first. Labour demand, production and goods supply are determined by expectations, depending on the demand of the previous period. This again leads to cycles and chaos, but also to long periods of ascent and decline.