Abstract

http://ssrn.com/abstract=894185
 
 

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How Realistic is the Supply/Demand Equilibrium Story? A Simple Demonstration of False Trading and its Implications for Market Equilibrium


Neil H. Buchanan


George Washington University Law School

November 9, 2010

The Journal of Socio-Economics, Vol. 37, No. 1, pages 400-415, 2008

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.

Number of Pages in PDF File: 35

Keywords: Tâtonnement, False Trading, Pareto Efficiency, Convergence, Disequilibrium

JEL Classification: B41, D50

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Date posted: April 4, 2006 ; Last revised: November 10, 2010

Suggested Citation

Buchanan, Neil H., How Realistic is the Supply/Demand Equilibrium Story? A Simple Demonstration of False Trading and its Implications for Market Equilibrium (November 9, 2010). The Journal of Socio-Economics, Vol. 37, No. 1, pages 400-415, 2008. Available at SSRN: http://ssrn.com/abstract=894185

Contact Information

Neil H. Buchanan (Contact Author)
George Washington University Law School ( email )
2000 H Street, N.W.
Washington, DC 20052
United States
202-994-3875 (Phone)
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