Wednesday, October 13, 2010

Supply and Demand Curves in Econ101

Cross-post from the Mises Academy Blog.

Professor Murphy covered supply and demand curves in his Econ 101 lecture today.  He covered common misunderstandings.  For one, even professional economists will from time to time mix up the idea of movement ALONG a curve, and a shift of the curve ITSELF.  Another thing forgotten is that the curves represent various hypothetical price/quantity pairs.  Here is Mises on supply/demand curves, from Human Action, Chapter 16, section 2:
"It is possible to visualize this interaction by drawing two curves, the demand curve and the supply curve, whose intersection shows the price. It is no less possible to express it in mathematical symbols. But it is necessary to comprehend that such pictorial or mathematical modes of representation do not affect the essence of our interpretation and that they do not add a whit to our insight. Furthermore it is important to realize that we do not have any knowledge or experience concerning the shape of such curves. Always, what we know is only market prices--that is, not the curves but only a point which we interpret as the intersection of two hypothetical curves. The drawing of such curves may prove expedient in visualizing the problems for undergraduates. For the real tasks of catallactics they are mere byplay."

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