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Econ 101 Might Be Wrong About Supply and Demand - Noah Smith https://t.co/jfb021GkGL— Mark Thoma (@MarkThoma) November 10, 2016
Econ 101 Might Be Wrong About Supply and Demand - Noah Smith https://t.co/jfb021GkGL
"Econ 101 Might Be Wrong About Supply and Demand"The Econ 101 law of supply and demand is very straight foward: if demand rises and/or supply falls, then prices will go up. Conversely, if demand falls and/or supply rises, then prices will go down.That's what I and everybody else understand as supply and demand model.When I read the title of Noah my first tought was "what the hell, even this basic model is wrong? how can it be?"Then you read it and understand that he is talking about something else, and that the title is just a bait for people to read it. I don't think that's honest.When economists start to do that in their blog posts, it's a bad sign. Usually it's s signal that you can't trust them anymore.
imo the correct view is that we are in constant surplus period... you start from that general condition and then develop a theory around that basic general condition...So when "supply and demand" theory brings in the concept of a "shortage" or "lack of supply" they are describing conditions that do not exist...
My favorite is the one "we're running out of water!" that's a good one....
The is no "law" of supply and demand other than in a model of an ideal world that doesn't have a counterpart in the real world.Supply and demand is useful gadget for thinking about basic economics. That's it.Is the Law of Demand really Universal?Here is a formal proofThis paper investigates the mappings used in the proof of existence of a general competitive equilibrium in Arrow-Debreu models, the single most important result of neoclassical theory in the last fifty years. It is claimed that these mappings represent the law of supply and demand. The paper examines the three most important mappings used to demonstrate the existence of a general competitive equilibrium. We show the behaviour of these mappings contradicts the law of supply and demand in the general n-commodity case. From a technical standpoint, this stems from the price-normalization procedure required to ensure mathematical properties needed to apply a fixed point theorem. Thus, our findings show that the existence results are mathematical theorems devoid of any economic sense. As a consequence, this paper implies a direct criticism of dominant economic theory from two points of view. The first one being the theoretical soundness and rigor of neoclassical theory. The second criticism is more general, as it concerns the relationship between mathematics and economic theory.The Law of Supply and Demand in the Proof of Existence of General Competitive EquilibriumThe Law of Supply and Demand in the Proof of Existence of General Competitive Equilibrium
Oops. Links didn't take.Is the Law of Demand really Universal?11 Criticisms Against the Say’s Law of MarketThe Law of Supply and Demand in the Proof of Existence of General Competitive Equilibrium
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