h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

An assumption of course of Supply/Demand Economics is that all elements of the economy are motivated to fulfill their own wants. This was an argument that I argued against in about my third economics tutorial at University. Somehow the lecturer won the argument. So I'm not the next Keynes.

The other problem IMO is, that nowadays the wants are not always logical. Trough advertising some demands in the market become somewhat artificial, because first you have the supply and then the demand. I think many problems are caused by this alrevers free market.
AXR

Trye striaight supply and Demand is no longer possible these days you have to account for advertising, branding etc the list is impossible no wonder modelling became so difficult.

I don't think this affects supply/demand theory.

Yeah, advertising may affect the *amount* of demand.

But the theory takes no account of how logical consumer preferences may be. It just takes them as given.

There's a good discussion of this in Stephen Landsburg's book _The Armchair Economist_.

rgds, jd

Ah put surely advertising has an affect on pricing. You need to pay for advertising to keep up demand at the price you want. so surely by having an effect on both it tilts the equation twice in the one direction.

Sure, but then that's an effect on the variables defining the supply/demand curves, not the theory itself.

I think the theory remains intact pretty much whatever you throw at it. The problem is, it might get so much external stuff thrown in that it then becomes a useless theory because you can't know what the variables are.

How to resolve that is beyond me!

On a related topic, I'm about halfway through George Soros' _The Crisis of Global Capitalism_, where he looks into the instabilities created by unregulated free markets.

jd

Oh yeah the variables. I remeber one equation at Uni that had more variables than components. Science at it's best.

Theory always is something great I'm waiting for the day it will work IRL.

If you take the basic supply/demand-theory, I think it works. The problem is if you have a product which nobody needs, you should nearly have to give it away for less ...
... and there are so many things nearly nobody needs, but look what you pay for them