734 THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA
THE STUDY OF PLANNED ROONOMY AND MAR-
KEL BCONOMY OF OIL AND ENGINE DEMAND
IN THE BQUILIBRIUM SYSTEM THROUGH 3.0.
Xia Yun Guan Chen Wan Kang
Suzhow Institute ef Urban Wu Xi Diesel Bngine
Construction And Environ- Factory
mental Protection
Abstract The systems of oil and engine production
of our complete planned economy before 1979 and mar-
ket economy guided by planned economy after 1980 are
simulated and some conclusions are given in these
models. :
The complete planned economy can't.meet the na-
tional requiment for oil and engines and the market
economy guided by planned economy can develop equi-
librumly under the instruction of mixed policies
applied to the production of oil and engines.
The main items of microeconomics are simulated
and some useful plots and conclusions are given.
Further study of many fields of macroeconomics and
microeconomics is expected.
Preface
System dynamics (in brief 8.D.) has already been
applied to many fields. The S.D. is thought to be used
in many fields of economics too.
Recently two models of planned and market economy
has been built to simulate the production of oil and
interconbustion engines (in brief engine) in China.
THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA 735
Introduction To The Models
We have built the two models by the S.D. One is.a
model of complete planned economy before 1979 in
China. The other is a model of market economy guided
by planned economy. After 1980 in China, in order to
decrease exterion variable, we chose oily. engines
and capital-as principle elements. The production of
oil-and engines,capital of oil and engine and amount
of engines stand for five levels. The supply of oil
and engines, prices of oil and engines are reprented as
important auxiliary variables, the amount of engines
and oil capital growth are important rates.
Model Of Planned Economy
Our complete planned economy is guided nationally.
Market economy factors were totally rejected. The
causal loops diagragh is as follows:
engine capital engine capital
or
supply, BSE aye 8 ayy prod ttEe*
Kpee
oil capital
engine OF engine Cm
lg
{ OP
oil supply oil production
Fige! the causal loops diagragh of comlete
planned economy
T36THE 1987 INTERNATIONAL CONFERENCE OF THE: SYSTEM DYNAMICS SOCITY. CHINA
In this models the 011 plan is based.on our oil
sources, oil capital and oil production capability.
The oil investment is stimulated by engine demands,
the engine plan depends upon our national macroscopic
plan. It is limited by: our oil supply, engine capital
and engine production capability. The of1 supply in
this model is the key as the engine production depends
on the oil supply. The conclusion from our regression
analysis is that the amount of engines possessed in-
creases 10,000 horse powers while oil consumption or
production increases 2700 tons. In this model, the
‘prices of oil and engines do not stimulate the out-
put or demands of oil. and engines, but the oil supply
affects to production of oil and engines to a great
extent. Thus the variable of oil plan is the key of
oil output and its value planned depends on increasing
rate of our oil plans and.our oil output. The instruct
of this model is simple. The flow dLagragh is as
follows: Figure Two.
The running of this model has been tested by 100
equations and the result is as follow:
engine
oil
Fig.3 The plot of limitless sources
THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA 737
a Thatee
_ es} IG
wong
Bi \ ~~ ANI)
\ ee J.
ns \ WSS jaan)
cask [2 \ oe CNET =) ob
Ch
_
8
OM
ragh
ag
Fig.2 The flow di
738 THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA
From the plots we can foresee the output of oil and
engines in the year 2000. Both the output of oil and
engines from figure four precipitately drops.
engine — men
a= aa \
NN
TIME
?ig.4 The plot of sources limiled
Further production of engines is limited by oil because
oil sources will be exhausted from a long point of view.
The output of engines has to depend upon the oil plan.
The demand for engines can't stimulate the oil output.
So the possessed engines can't meet the public requi-
rements for them. As there is no price variable, and
market readjustment, invisible hand, the oil plan can't
stimulate the microeconomy and it is difficult to adjust
our production structure according to our market struc-
ture.
Model of market economy guided by planned economy.
When our system reformation started in 1980, we began
making the model of our market economy guided by planned
economy. The causel loops diagragh of this model is in
Pigure Five.
THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA 739
engine capital oil demand.
engine engine 2
supply production oit
oil pyéduction supply
G)__
/
/
/ /
engine capital
engine demand (=) ital
engine engine
supply production
engine possession
engine demand
Fig. 5 The causal loops diagragh of market econmy
guided by planned economy
740 THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA
|
Fig.6 The flow diagragh
THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA 741
The systematic behavior of this model has changed
significantly because some variables---the prices of oil
and engines and their demands have been added to sti-
mulate planned output. Market factors being added, our
engine plan has changed too, our microscopic, engine plan
can come from the differece between our-national macro-
scopic plan and social engine possession, and market
readjustment. This system contains three important
auxiliaries---instructed plan, guided plan and market
readjustment plan. The engine production is limited by
engine production capability and is controled by mar-
ket. The foodback is affected by prices of oi1 and
engines, and demands for oil and engines. It can reach
as high as 100%. So it is very important to change the
system behavior. As for oil, its price is affected by
market facters very limitedly. Therefore the system
behavior is adjusted indirectly by oil price and demand.
The value of adjustment is limited by our policies,
our oil plan is nationally made and determined by our
oil sources, our publish engine possession, oil exhaus-
tion rate.
In order to analyse the system behavior of this model
we have supposed many policies, they are:
(1) the policy of limit concerning engine use.
(2) the policy of planned supply of oil.
(3) the policy of engine production limitation.
(4) the policy of forceful engine depreciation.
(5) the policy of controlled engine buying.
(6) the policy of controlled import and export of engines.
(7) the policy of interprise production readjustment.
The results of these pclicies are as follows:
742 THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA
engine
L—
Fig.7a The behaviour putting the policy 6 into effect
engine
a
oil
Fig.7b The behaviour putting the policy 3 into effect
Fig.7c The model can develop equi tL brumly under the
instruction of mixed policies
THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCTTY. CHINA 43
In microeconomics there are many important items.
Some characteristic items are simulated by the $.D.,
so as to analyse the system behavior.
The simulation of spide web effect.
Suppose the engine supply is S*K in a month. It is
function of price twelve monthes ago, so S¢-K = S(P+K-12)
and engine demand is N-K in a month. It is also fun-
ction of price a month ago, so NeK== N(P-K—1).
Naomana-k <= S(DLINF3(PRICR-K,1)) (1)
Ssupply-k == S(DLINF3(PRICE-K,12)) (2)
The price-k stands for the present price. As PRICE-K is
related with Ssupply-k and Ndemand- it is known that |
Ndemand:-k
PRICE+K== ke —g—————— (3)
isuplly:k
k& is factor.
According to the relationship between supply and de-
mand, if Ndemand-k>Ssupply-k» that is PRICE-K>1, the
supply is stimulated, vi-ce ver-sa the DRMAND’K is
stimulated . Through clip function, we can express the
item of the relation of spide web between supply and
demand.
The description of elasticity demand through 3.D..
The elasticity theory is famous in microeconomies.
Elasticity between supply and demand is sensitive to the
change of goods supply versus the demand. In this model
the elasticity of demand between the supply and demand is
simulated.
Ay
The elasticity e= at (4)
x
744 THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA
So the engine elasticity between supply and demand is
Smooth(DEMAND-K,DT) DEMAND:+K
Smooth(DaMAND K,DT) (5)
~ smooth(SUPPLY-K, DT) SUPPLY-K
Smooth(SUPPLY- kK, DTJ
The DT is length of steps.
In this model, many elasticity items can be expressed,
for example: elasticity of demand, elasticity between
demand and price, elasticity between supply and price,etc.
The elasticity of price of engine is in Figure 8
Fig.8 The elasticity of price of engine
The conclusions and evaluations of the simulating
model.
The simulating conclusions are as follows:
a. In the system the elasticity of oil price is weak
because oi1 is controlled largely by planned economy.
b. The system readjustment is limited by the price
readjustment.
ec. The efficiency of our mixed policies is seen in the
equilibrium development of the oil and engine system.
The S.D. can simulate planned economy and market
economy guided by planned economy in China., the :
THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA 745
characteristic relationships in microeconomics —— the
relationship of demand, relationship of price, the rela-
tionship of elasticity, can be simulated as well.
If the model is improved, the study of margin effect in
microeconomics can be widened and deepened. When popula-
tion and income are necessarily taken into consideration,
this model can be enlarged easily.
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