Tuesday, July 28, 2009

Why is supply and demand so confusing?

For those who teach principles of economics, this post by Scott Sumner is worth contemplating.

Scott does a good job explaining why the model of supply and demand is not always as straightforward as it seems. Why? I would put the answer as follows: Supply and demand curves are always drawn "holding other things constant." The key question when considering any possible shift in these curves is which other things are being held constant in the situation at hand.