What Students Learn in Economics 101: Time for a Change
On the need for a new perspective in economics education:
The question thus arises: how do we want students to use the supply and demand apparatus when there may be excess demand or supply in equilibrium—as in the labor or credit markets when lending and hiring is analyzed using a principal–agent model? A Bowles and Carlin: What Students Learn in Economics 101 related question arises in other markets if the out- of-equilibrium rent- seeking behavior of firms and individuals generates significant excursions away from the intersection of the supply and demand curves determined by economic fundamentals.
Our response is that in many settings “where the supply and demand curves cross” is not the correct answer. Importantly, this does not amount to an abrogation of the “laws of supply and demand” or a reduction in their force. It requires instead that we break away from the benchmark of the intersection of the two curves, either because that intersection may not exist, or may not be where the market is heading as occurs, for example, during a bubble.
I absolutely agree.
