My 2 streaming videos address this question. On Wed, Aug 11, 2010 at 09:56:02PM -0700, Lakshmi Rhone wrote: > 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
> _______________________________________________ > 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
