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How Realistic is the Supply/Demand Equilibrium Story? A Simple Demonstration of False Trading and its Implications for Market Equilibrium
Journal of Socio-Economics (2008)
  • Neil H. Buchanan, The George Washington University Law School
Abstract

Transactions at non-equilibrium prices are false trades. Under standard assumptions, markets without false trading produce Pareto-efficient outputs. This paper demonstrates graphically the complications created when false trades occur, showing that quantities produced deviate from Pareto-efficient quantities except under unique conditions. In a general equilibrium framework, this spills over to cause Pareto-inefficient results in other markets as well. These observations call into question the use of standard supply-and-demand equilibrium theory as a starting point for policy analysis.

Disciplines
Publication Date
2008
Citation Information
Neil H. Buchanan. "How Realistic is the Supply/Demand Equilibrium Story? A Simple Demonstration of False Trading and its Implications for Market Equilibrium" Journal of Socio-Economics Vol. 37 Iss. 1 (2008)
Available at: http://works.bepress.com/neil_buchanan/10/