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If the supply curves of both markets are expressed as functions that accept Price and return Quantity, then the supply curve of the combined market is the sum o

If the supply curves of both markets are expressed as functions that accept Price and return Quantity, then the supply curve of the combined market is the sum of these two functions. I.e. for each price the combined quantity of supply is the sum of the two supplies. Same with demand. Then the equilibrium of the combined market is the intersection of combined supply and combined demand. Am I missing something?

js8 9y ago
To be honest, my memory is really hazy about this, but the problem is, how do you interpret the aggregate price in aggregate equilibrium, then? Is it what you would expect it to be? I just did a quick calculation - based on your suggestion - with linear demand/supply curves and what I got as the aggregate price is a weird combination of the two prices. It's not any kind of (weighted) average of the two, as far I can tell. In particular, it seems to me that the aggregate price will differ if, for one of the markets, we change either demand curve or supply curve but keep their intersection at the same point. That's wildly counter-intuitive, I don't know why should aggregate price behave this way. Maybe I am wrong, and you can make it work. If you do, write it up! It really should be in textbooks, it's embarrassing they don't discuss this case. And this is a case of two (presumably) completely independent markets with linear curves. It gets much more hazier when you have a relationship between the two markets (for example, one is a substitute for the other).
- yorwba 9y ago
  I don't think you can get an exact aggregate supply/demand model if you are aggregating over non-interchangeable products. To combine the models for different products, you'd need vector-valued price, supply, and demand. That could lead to strange interactions, which wouldn't be captured by lower-dimensional models. Disclaimer: I've never even taken Econ 101, so I might completely misunderstand something. If that's the case, please downvote and tell me where I'm wrong.
  - js8 9y ago
    This is kinda the conclusion that Steve Keen's Debunking Economics arrives at too, although amazingly enough, through a different path (avoiding breaking the monotonicity assumptions on supply and demand curves). Basically, any aggregate supply/demand model has a single consumer and a single product. Which makes them pretty much useless, and they just need to go.

js8 9y ago

To be honest, my memory is really hazy about this, but the problem is, how do you interpret the aggregate price in aggregate equilibrium, then? Is it what you would expect it to be? I just did a quick calculation - based on your suggestion - with linear demand/supply curves and what I got as the aggregate price is a weird combination of the two prices. It's not any kind of (weighted) average of the two, as far I can tell. In particular, it seems to me that the aggregate price will differ if, for one of the markets, we change either demand curve or supply curve but keep their intersection at the same point. That's wildly counter-intuitive, I don't know why should aggregate price behave this way. Maybe I am wrong, and you can make it work. If you do, write it up! It really should be in textbooks, it's embarrassing they don't discuss this case. And this is a case of two (presumably) completely independent markets with linear curves. It gets much more hazier when you have a relationship between the two markets (for example, one is a substitute for the other).

yorwba 9y ago
I don't think you can get an exact aggregate supply/demand model if you are aggregating over non-interchangeable products. To combine the models for different products, you'd need vector-valued price, supply, and demand. That could lead to strange interactions, which wouldn't be captured by lower-dimensional models. Disclaimer: I've never even taken Econ 101, so I might completely misunderstand something. If that's the case, please downvote and tell me where I'm wrong.
- js8 9y ago
  This is kinda the conclusion that Steve Keen's Debunking Economics arrives at too, although amazingly enough, through a different path (avoiding breaking the monotonicity assumptions on supply and demand curves). Basically, any aggregate supply/demand model has a single consumer and a single product. Which makes them pretty much useless, and they just need to go.