Catastrophe Theory in Economics

Abstract

Based on mathematical topology, a newly developed theory called catastrophe theory provides interesting explanations of why apparently stable relations display sudden jumps—discontinuities called catastrophes. This theory readily lends itself to applications in economics where problems of unstable relationships occur. This paper is an introduction to the concepts and terminology of catastrophe theory as used in economics and explains its application in providing deeper insights into the theory of the firm in the intermediate microeconomic theory course.