Supply and Demand Rules the Market

For all you folks out there that believe that the market behaves in an arbitrary totally irrational manner get an education by reading the following article posted at The Undercurrent where Kristina Saraka writes that the market is ruled by the law of supply and demand, the fundamental principle of economics.

In July, rioters laid siege to several Pakistani stock exchanges to protest declining prices in the stock market. At the Karachi Stock Exchange, a mob of small investors destroyed equipment and files, smashed windows, and burned tires in a rage over falling prices.

In a similarly-themed if less violent protest, two little girls in Utah, upset that their parents could no longer afford cable television due to increased gas prices, recently marched around downtown Salt Lake City with signs protesting the price of gas. One girl explained, “Gas prices are too high. I just decided to come and protest so they’d go down.” Most would agree that this is a childish way to attempt to change prices, yet many adults share the basic idea on which the protest is based.

Both the Pakistani rioters’ and the girls’ protests are rooted in the idea that the market, and in particular, prices, are arbitrary. They believe that stock exchange executives or foreign investors or the oil companies set prices to any level they choose—and that therefore, the effective response to rising or falling prices is simply to demand that someone change the prices back to the desired higher or lower level.This view of prices—that producers can set whatever prices they wish without consequence—is fundamentally mistaken. If producers could really set prices per their whims, why did oil companies wait so long to start selling oil at $100+ a barrel? Why, only a few years ago, did they choose to sell oil at less than $20 a barrel rather than rake in the profits at a higher price? If businesses can name their prices...(Read the rest here).