With the necessary precision and detail Jim Devine wrote:
"In the Walrasian mythos, the Auctioneer calls out a price. Suppliers then offer a quantity while the buyers offer a different quantity (in this case smaller). With a glut on the market, the price is cut -- but in the Walrasian imagination, no trades are made. The trades are made only when the quantity supplied equals that demanded. I think what you're referring to is what's called "false trading," i.e., the case where deals are made before the price attains equilibrium. This "false" trading happens a lot in the real world. After a leftward demand shift, suppliers can be desperate for cash-flow and thus sell before the price can equilibrate, i.e., sell at a sub-equilibrium price. This in turn can lowers their perceived net worth and can cause lay-offs (especially if the problem is general). This shifts demand and can cause a multiplier effect. It doesn't usually affect short-run supply as usually interpreted (i.e., the supply curve or schedule), which has input costs and the fixed capital held constant. A firm might sell below marginal cost (and thus below its supply curve) because the need to keep cash flowing and to pay debt service overrule decisions based simply on production. However, an actual supply shift may happen (e.g., if wages or raw material costs fall in response to the recession)." Yes I am referring to the only trading that there is--false trading. So I am asking whether in the scenario you sketch above will supply eventually be reduced so that the equilibrium is actually achieved? I don't think this usually does happen, though this is what most Econ I textbooks tell us is bound to happen. I don't think that in the face of overproduction the extant equilibrium will ever be reached because enough firms will find a way of solving the overproduction problem by jumping the supply curve such that even more can be sold at or even above the new equilibrium price than could be sold when prices had to sink below the then extant equilibrium price to sell off the total output. The crucial point is that overproduction is actually overcome with even more production, and that is not a dynamic on which any econ textbook of which I know spends even a moment! I see that on lbo-talk economists were encouraging Marxists to take the static adjustment process of supply and demand economics seriously, but I don't see why we should. Lakshmi
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