3 ms·
"Discontinuities" is incorrect because supply and demand curves are often discrete and almost always non-smooth (due to quantization and many other reasons), bu
by nickff 12y ago
"Discontinuities" is incorrect because supply and demand curves are often discrete and almost always non-smooth (due to quantization and many other reasons), but always continuous. This is partly because of how supply and demand curves are defined, but also because of the reasoning behind them. Economy-wide supply and demand can be understood as the result of the supply and demand of each participating person; because each person's supply and demand curves each have unique properties, they cannot all coincide in a manner so as to produce a discontinuity. Moreover, if you examine the supply and demand of each individual, there is no discontinuity, as, for example, no sane person would value water at $5/L for <=20L and $4 for >20L (though that may end up being how it is priced for a single person, it does not demonstrate any fundamental discontinuity in the supply or demand, as pricing scheme vary for an infinite number of reasons).
With respect to the BMW example, I still stand by it, and I did not originally mean that BMW represented the entire transportation industry; their fundamental similarity is what is important here. There is nothing special about he market for water, and using transportation capital goods as a bridge between the water market and the luxury automobile market demonstrates their fundamental similarities well (though I would not suggest flushing a bus down the toilet).
- mikeash 12y agoYou are of course correct that there's nothing special about the market for water. The problem, again, is equivocation. You say that we could end water shortages by accurately pricing water. The problem is that when you say "shortage" in that context, you're using the economic definition wherein a shortage is a situation where some external force prevents A from selling something to B for a price they're both willing and able to accept. Whereas when we think of water shortages, we normally think of whether or not people are able to obtain enough water to continue living. Yes, market pricing for water ensures there would be no "shortage" in the economic sense, by definition. But it tells us nothing about whether people would be able to obtain enough water to survive within such a market. Maybe they would, maybe they wouldn't, but you haven't demonstrated that they would.
- nickff 12y agoYou are completely correct, in that I have in no way proven that a market in water will provide sufficient quantity for all the residents of any specific (or general) area to live off in the long-term. I have only said that there would be no water use restrictions, or problem of the wells and dams running dry, which are usually described as 'droughts' or 'shortages'. A very strong case can be made that a market for water would provide enough water for all the individuals to use (in developed areas), as well as resolving the aforementioned issues, but it is impossible to prove on theory alone; we would have to test.
- mikeash 12y agoI agree that it's likely a market solution would be adequate in this case, and in developed areas in general. The market price for water in most places seems to be quite cheap. Thus why I was only criticizing the analogy, not the conclusion.