mercoledì 29 gennaio 2025

In summary, while perfect equilibrium is elusive... disequilibrium is common.

Richard Werner: In economics, it is usually assumed that markets are in equilibrium. This is the foundation for and precondition of most of the currently dominant theories and economic models. However, can you tell me if there is actually any evidence of equilibrium in any market? 

DeepSeek:

 The concept of market equilibrium, where supply equals demand at a certain price, is a foundational assumption in economics. While perfect, continuous equilibrium is rare in real-world markets due to dynamic factors, there is empirical and experimental evidence supporting the tendency of markets to move toward equilibrium. Here's a breakdown:

Evidence of Equilibrium Tendencies

  1. Agricultural Commodities:

    • Prices for goods like wheat or corn often stabilize temporarily after harvests, reflecting supply-demand balance. However, external shocks (weather, policy changes) frequently disrupt equilibrium, highlighting it as a dynamic process rather than a static state.

  2. Auction Markets:

    • In art auctions or online platforms like eBay, prices adjust through bidding until the item sells to the highest bidder, achieving momentary equilibrium. This is a clear, observable example of equilibrium in action.

  3. Experimental Economics:

    • Vernon Smith’s seminal experiments (1960s) demonstrated that even with limited information, participants in controlled markets converge toward equilibrium prices and quantities through repeated trading. These lab settings provide strong empirical support for equilibrium dynamics.

  4. Retail Markets:

    • Consumer electronics often start at high prices upon release, then stabilize as production scales to meet demand. This gradual price adjustment reflects movement toward equilibrium.

  5. Financial Markets:

    • While the Efficient Market Hypothesis (EMH) is debated, prices in stock markets adjust rapidly to new information, suggesting a tendency toward equilibrium. However, bubbles and crashes illustrate deviations, emphasizing that equilibrium is a theoretical benchmark rather than a constant reality.

  6. Housing Markets:

    • Studies show that rising prices and low vacancy rates often spur construction until supply meets demand, indicating equilibrium forces. However, lags in adjustment (due to construction time, regulations) mean equilibrium is rarely sustained long-term.

Challenges and Criticisms

  • Disequilibrium Realities: Markets often face shocks (e.g., pandemics, policy shifts), information asymmetries, or behavioral factors (e.g., irrational exuberance) that prevent perfect equilibrium.

  • General Equilibrium Complexity: While partial equilibrium (single markets) can be observed in specific cases, general equilibrium (all markets interacting) is too interdependent and complex to measure empirically.

Key Takeaways

  • Equilibrium as a Model: The concept is a useful theoretical tool for understanding price mechanisms and market behavior, even if real markets are perpetually adjusting.

  • Empirical Support: Experimental, auction, and commodity markets provide evidence of equilibrium tendencies, though equilibrium is often transient.

In summary, while perfect equilibrium is elusive, markets exhibit clear tendencies toward equilibrium, validating its use as a foundational model in economics. The evidence lies in price adjustments, experimental outcomes, and specific market behaviors, even as real-world complexities ensure disequilibrium is common.


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