No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Five: Supply & Demand: Markets at Work 120 Cautionary note: the changes we’ve just stepped through will be the result of the market process—the groping of suppliers and demanders to find out the true equilibrium price. This will be a continual process since everything is always changing. One should not expect a change in demand or supply to lead instantly (or exactly) to these new equilibrium prices and quantities; the analysis we’ve just seen is how the process will tend to unfold, and why suppliers and demanders will act the way they do. We should not expect the long-run equilibrium position to be exactly where we end up in these charts, precisely because there is no long-run equilibrium in a dynamic market economy. Over time, there are continual innovations and changing preferences that drive additional changes in our supply and demand framework. Table 5.1 provides a summary of the effects of changes in supply and demand. Changes in supply result in opposite movements in price and quantity, while changes in demand result in changes in the same direction. The market process is a competitive auction and tends to lead to a “social” value imputation to everything in the market. Since market prices reflect the individual valuations of many market participants, that price may or may not be consistent with godly values. Many prices of goods and services are inconsistent with our individual moral values—that’s precisely what makes up a market. In a market, everyone’s values (as represented by their demand for certain products) are reflected in market prices; both “saints” and “sinners.” Critics that don’t like free market results often wish to regulate or otherwise control prices to have their individual morals prevail. It will likely be more effective to treat the disease rather than the symptom; critics might be better served to win hearts and attitudes that would then lead to better market results. Since God gives us freedom to do right or wrong in the exercise of our stewardship responsibilities—with positive or negative consequences—we ought to be very discerning and cautious in our attempts to regulate the behavior of others, especially those outside the body of Christ (1 Cor. 5:12-13 ). IT’S A WRAP! In this chapter you’ve learned how supply and demand interact to lead toward a tendency to equilibrium—an ill-suited word to describe the constantly changing competitive price system we see in the real world. While some consider supply and demand analysis simplistic, it is really not. Many of you seeing it for the first time won’t think it’s simple at all! Yet, this “simple” analytical tool can help us understand much of the world around us. In the next chapter we’ll put it into practice with many real world applications. Effect on P Effect on Q in S in S in D in D Table 5.1, Changes in Supply and Demand