Lecture II: Commodity markets: the economics of a 'spot' contract
LECTURE II Commodity markets: the economics of a “spot” contract It needs to be stated at the outset that Supply and Demand is, at best, a tendency and not a “Law.” Unfortunately, the rhetoric indulged in by too many economists, paid consultants, opinion page writers, and other sundry “experts” has so undermined our thinking that this must be clearly stated. With this preliminary out of the way, we can state that our collective experience with markets suggests recurrent tendencies or trends. Upon considering these tendencies, economists and others have perceived persistent patterns. As a consequence, early social scientists developed a set of metaphysical propositions concerning the “innate” nature of people and, by extension, market processes.1 These metaphysical notions include propositions such as “people are rational” and “people are self-interested.” From these ideas it is deduced that people will invariably search out the best products at the lowest prices, all other things being equal.2 As discussed in the introduction, I am partial to such views. However I also believe that an accurate understanding of how markets work requires Theories, rather than a single Theory, of Supply and Demand. The market to be examined in this lecture will be labeled the “commodity market.” I need to emphasize, here at the beginning, that in these lectures the word “commodity” has a speciﬁc deﬁnition. In these lectures, commodities are commonplace or everyday items used for personal consumption.3 It will be assumed that the use or display of these items confers neither status...
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