I use a student's water bottle to make this point. The water presumably moves toward equilibrium but my motion makes more counteracting forces before the equilibium can occur. Even if I put it on the table, tell them that the tiny vibrations are causing the same sort of disturbance.
On Tue, Aug 10, 2010 at 07:51:45PM -0700, Lakshmi Rhone wrote: > At his blog Rajiv Sethi quotes someone saying: > > > > ?perhaps the fundamentals move faster than the markets adjust, so FX is > never in equilibrium. Perhaps (in the language of statistical mechanics) the > relaxation time is much longer than the average time between forcings.? > > > > > > OK makes sense: We are always forced out of an existing equilibrium before > the system makes the adjustments to arrive at it. > > > > Well I never did get the economists' vision that the economy is best > understood as making price and output adjustments to arrive at a given > equilibrium when there is over or underproduction. > > For example, the consequence of being out of equilibrium as the economy > always in fact is--for example, supply exceeding demand as it so often > does--is often enough a shift of the aggregate supply curve such that a new > equilibrium price is being set. > > The market does not work by adjusting supply to demand at the already > existing theoretical equilibrium price (oversupply may be dumped at below > equilibrium prices but this does not mean that the economy is adjusting by > reducing supply so that there is supply and demand equilibrium at the > already existing equilibrium price); in fact supply will not eventually be > reduced. It will be increased. That is the consequence of overproduction. > > > In other words, the responses of market actors to disequilibrium do not > bring about adjustment towards the already existing equilibrium but rather > the creation of a new equilibrium price, usually the result of jumps in the > supply curve in response to overproduction. > > And those jumps are also brought about by bigger, more powerful firms at the > expense of smaller ones. Bankruptcy and real competition (as most people, > not economists, define it) is an essential part of the so-called > "adjustment" process which is not really an adjustment process. It's a > process of creative leaps and destruction. > The market is presented as a serene system of peaceful marginal adjustments > to arrive at equilibrium. But capitalism is actually a system of dynamic > disequilibrium. > > But my question for the economists: how do you explain what the market > consequences are to disequilibrium? > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu michaelperelman.wordpress.com _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
