I forgot to thank Michael for the Joan Robinson references. Thanks Ok just take that graphical representation; it should be attached. Just took it from wikipedia.
Here is my simple story: 1. There are structural reasons why in many industries the quantity supplied tends to exceed the equilibrium quantity, represented here by Q1. 2. So let's total output is initially somewhere between Q1 and Q2. There is overproduction. What happens? 3. Of course price competition sets in, perhaps bringing the price down below the equilibrium price at P1. Firms can't cover their costs for the supply that they have provided. Now what happens? The story that every Econ I student is taught that total supply will eventually be reduced so that the equilibrium intersection point is reached. But this is not happens in many industries. The suppliers see that demand expands at the lower disequilibrium price and many do not attempt to reduce supply but to shift their supply curves leftward by making big capital intensive investments by which unit costs are reduced such that their costs can be covered at the lower disequilibrium price. Some firms can't make those investments and they are wiped out but the surviving firms can produce, more or less, the greater supply demanded at the new lower equilibrium price. So there never is an adjustment to equilibrium via a supply reduction. But why do economists tell students that this is how the market works? Does capitalism really work that way? I am wondering how economists talk out what happens in the adjustment process to disequilibrium, and I appreciate the help. Yours, Lakshmi <http://en.wikipedia.org/wiki/File:Supply-demand-right-shift-supply.svg> <http://en.wikipedia.org/wiki/File:Supply-demand-right-shift-supply.svg> An outward (rightward) shift in supply reduces the equilibrium price but increases the equilibrium quantity
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