Towards an Observational Economics of Business Behaviour: The Horizontal Supply Curve, 'Fuzzy' Demand and Other Anomalies for Conventional Theory

Abstract

This paper proposes the development of an 'observational economics' whose domain would be restricted to what is observable in the real world. Observational economics should be regarded as a separate but complementary undertaking to mainstream economics. Adoption of such an approach would enhance the reestablishment and development of interaction between economists and the business community. Phenomena such as price setting, unpredictable and variable demand, and inventories and order backlogs are argued to be anomalous from the viewpoint of conventional microeconomics, but fundamental to an observational perspective on business behaviour. A basic observational model of price and output determination for the price setting manufacturing firm is outlined.