Economics Questions

Re: Is this a useful analogy?

DD5 — Tue, 26 May 2009 19:12:48 GMT

"Supply & Demand" IS a negative feedback loop. Is it too scientific to simply state a fact? The difference is that the dynamics of a thermostat can be modeled exactly by differential equations, but "supply & demand" in the "real" world cannot.

Re: Is this a useful analogy?

Sage — Tue, 26 May 2009 18:08:43 GMT

Fair enough, but there are some really stupid people out there.

Re: Is this a useful analogy?

nirgrahamUK — Tue, 26 May 2009 16:45:19 GMT

your 4 sentance explanation paragraph is simple enough that it hardly needs an analogy to other dynamically stable process to help a newbie understand it...

Is this a useful analogy?

Sage — Tue, 26 May 2009 16:38:43 GMT

Is comparing the laws of supply and demand to a balancing feedback loop (e.g. a thermostat) a useful analogy? Or is it too scientistic?

So, on a freed market, supply tends to equal demand:

If demand for a good increases, or if the good’s supply decreases, its price will be higher than it otherwise would have been. Consequently, the higher price will discourage demand while encouraging increased supply. Conversely, if demand for a good falls or if the good’s supply rises, its price will be lower than otherwise. As a result, the lower price will encourage increased demand while discouraging supply. Markets clear.

With a thermostat, if the temperature in a room goes below a certain point, the furnace turns on; when the room achieves the set temperature, the furnace turns off. Room temperature tends to be constant.

What do you think? Is this a useful heuristic, or is it too scientistic?