Article Review : "Where do Price come From ?" by Robert Russell
Prices adjust to equate how much people want to buy with how much they want to sell.
And if people want to buy more than they did before, prices rise. If people want to sell more than they did before, prices fall. Supply and demand. Buyers are competing with each other. Sellers are competing with each other. The prices we observe emerge from this competition.
The simple answer of supply and demand is a strange answer, for it presumes you can talk about a good of a particular quality. In the real world, every good has a unique mix of attributes. Even when two goods are physically identical, they almost always come bundled with differing levels of service attached to them.
Where do prices come from? The prices that we observe in the world around us emerge from the interaction between buyers and sellers and their alternatives. How can we capture the strange fact that no transaction takes place in a vacuum? How can we capture the order that emerges from all those transactions?
Supply and demand is a simple and powerful way to describe the ways that transactions across time and space are not independent of one another. It is a powerful way to organize our thinking about the complexity that emerges out of the propensity to truck, barter and exchange, a complexity that is the result of human action but not of human design.
source : http://www.econlib.org/library/Columns/y2007/Robertsprices.html
And if people want to buy more than they did before, prices rise. If people want to sell more than they did before, prices fall. Supply and demand. Buyers are competing with each other. Sellers are competing with each other. The prices we observe emerge from this competition.
The simple answer of supply and demand is a strange answer, for it presumes you can talk about a good of a particular quality. In the real world, every good has a unique mix of attributes. Even when two goods are physically identical, they almost always come bundled with differing levels of service attached to them.
Where do prices come from? The prices that we observe in the world around us emerge from the interaction between buyers and sellers and their alternatives. How can we capture the strange fact that no transaction takes place in a vacuum? How can we capture the order that emerges from all those transactions?
Supply and demand is a simple and powerful way to describe the ways that transactions across time and space are not independent of one another. It is a powerful way to organize our thinking about the complexity that emerges out of the propensity to truck, barter and exchange, a complexity that is the result of human action but not of human design.
source : http://www.econlib.org/library/Columns/y2007/Robertsprices.html
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