Lakshmi writes: > 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. <
is equilibrium ever achieved? No. where it exists, it's notional, a center of gravity around which prices fluctuate. > 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! < It makes sense to me to reject the standard static model of supply and demand.[*] In a (non-perfectly) competitive market, there are a bunch of firms that are actively competing to garner profits by accumulating capital. They jockey for position, trying to expand their sales even if (on aggregate in the market) it causes the quantity supplied to exceed the quantity demanded. Each one of the acts on the hope that any overproduction will afflict other capitals -- and then works to make sure that the costs of overproduction are incurred by others (not that each of them succeeds). So we see waves of overproduction and then retrenchments, all else constant causing the concentration and centralization of capital in the market along with fluctuations of prices around the notional equilibrium. That said, the simple supply/demand model works pretty well for some purposes (e.g., pointing out the way that price inflexibility causes gluts or shortages). The problem happens when the Ekon assume that the model works perfectly and applies to all markets. > 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. < it's good to know what the economics profession is thinking. Know thy enemy! Michael Perelman writes that: >Sraffa's method is intended to support the labor theory of value. Supply costs >are fixed. Demand only determines the quantity supplied.< it's too bad his work encouraged people to think of Marx's "law of value" as a theory of price (cf. the neo-Ricardians). I don't think it is. Deviations of prices from values are just as important as their correspondence. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. [*] One thing: standard models assume that each firm has constant returns to scale. In that case, there's no profit-maximizing firm size, no equilibrium number of firms, and no reason to expect the quantity of output supplied by all the firms in the market will continue to add up to the market quantity demanded. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
