SORAnomics vs Economics Supply and Demand

Implementation of Dialectics on Sophistry by Economics

Apr 7, 2015
Adam Smith’s Supply and Demand Curves (below) are the foundation our proposed science calledSORAnomicsand can be applied to any problem in economics in order to provide common sense answers. For example, the question below appears inPrinciples of Microeconomics by Mankiw:

Question: The equilibrium price of coffee mugs rose sharply last month, but the equilibrium quantity was the same as ever. Which explanations could be right? Explain your logic.

Re-phrased Question: The market price of coffee mugs rose sharply last month, but the quantity supplied was the same as ever. What is the explanation?

This re-phrased question does not impose 'equilibrium,' since it is amercantile sophistry or not-so-obvious-lie.We then apply Socrates' Dialectical method (which is the same thing as Hume's critical thinking) in order to chase down the cause of the permise or hypothesis. Unlike the scientific method which just gets data from perceptions, the Dialectical method gets data or inferences from the perceiver himself which in this case is the mind of the asker.

Economist

SORAnomist

The supply for coffee mugs was "perfectly inelastic"The price of the coffee mugs during the previous month was an introductory price. The price afterwards is thenatural price (a concept that is not present in economics)

There is a single supplier of coffee mugs in the whole society and people have no choice but to buy from it at whatever price it wants. Sothe demand curve shifted to the right.Demand increased but supply was totally inelastic.

There are many suppliers of coffee mugs. The company's specific new mug however proved to be a hit among consumers. Sothe supply curve shifted upwards.*

* We don't say that it shifted to the right just as we don't say that today's price or production quantity is'more rightwards'than last year's. We always say that it's higher or lower and never'righter'nor'lefter'.This way of removing jargon is similar to:
  • how the Buddha spoke in Pali (a commmon languge) instead of Sanskrit (an elite language)
  • how Martin Luther translated the Latin Bible into common German
  • how Kobo Daishi invented simple hiragana script to replace kanji (an elite script) and free the people's minds.

Based on the only information in the question, and assuming it is a realistic scenario (why would students be taught unrealistic scenarios?), we can deduce that the previous price for the coffee mugs was an introductory price (lower than usual) in order to entice buyers (four mugs were sold at $3 each). The price was raised the next month as demand was established as all the previous mugs were sold, and it was assured that the mugs were unique enough as not to invite competition. Thus, four new mugs could be sold at $6 each, with a $3 rise in profit. Production was not increased because there was no guarantee that the demand would remain.

Fallacy**: There is only one coffee mug supplier or Coffee mugs are so essential to society that people won't mind paying increasingly high prices for it.Relative Truth:No coffee mug, nor any product, could ever be worth an infinite value as to be a "perfectly inelastic" good.
The question cannot possibly refer to all mugs in a country (macroeconomics) because no producer has dictatorial powers to control the supply of all mugs

The mug therefore refers to a specific kind of mug from a company or conglomerate of companies (microeconomics) that can control its supply
** Update April 2021:The supply and demand for vaccines is recent proof of the sophistry of Economics.The pandemic shows the direct cost of this sophistry to human life, by exposing that most humans would prefer objects and money instead of other humans

An established lie, taught in schools, creating a fake economic world that crashes often

The marginalist elastic and inelastic supply curves are an example of sophistry. This is because supply curves ultimately have adownward slope, responding to the downward demand curve. We have called thisSmith's Demand Motive, which is the opposite ofSay's Law. In other words, businesses produce to meet the demands of society. In economics however, the demands of society are manipulated to increase the produce and sales of businesses (since profits, and consequently utility and pleasure, come with sales), and so infinitely high prices are possible.

Thus, in the problem, people somehow are willing or made willing to buy the same coffee mug at a much higher price. In reality, this can only happen if:

  1. There was only one coffee mug supplier in the whole society.

    Following the logic of the perfectly inelastic curve, the company merely needs to advertise its mugs to increase demand or 'shift the demand curve to the right'. It can then steadily raise its prices as demand increases fearing no loss in demand. (The economist's answer leads to this)

  2. Somehow people were made to buy more coffee mugs at higher prices

    An example is a special event for that month. Smith gives an example as a public mourning that raises the demand for black cloth. The same thing happens for flowers during Valentine's day. But in such cases,production is increased.Since the question says production was not increased, it means the event was sudden or temporary, like rain creating a sudden demand for umbrellas on the street. Even if this were the case,competitionwould prevent prices from being rising arbitrarily unless there was only one umbrella supplier, which leads to the first scenario. More realistically, the event called specifically for that kind of mug from that supplier, which leads to the next scenario.

  3. Those specific coffee mugs suddenly became so popular, for example through social media.

    Realistically, the mug was a new mug, first sold at an introductory price to test the market. Once demand was established, it was raised to its natural price. Unlike in scenario 1, the mug's price cannot be raised to infinite heights because this would invite competition. (The SORAnomist's answer leads to this)

promo
Introductory pricing occurs in real life.

Conclusion

In a free society, a good can never be "perfectly inelastic*". Even if oil prices, for example, were raised to exorbitant prices, society will switch to coal, LPG, firewood, electric cars, public transport, bicycles, etc. through their own effort. Even if a terminal cancer patient was sold a life-saving drug in exchange for all his life's present and future money and assets, as to leave him only his clothes for the rest of his life (the highest possible price for his life is his life, as in pure slavery), he will likely not do the trade. Thus, it can be observed that in economics, economic slavery** is a real possibility, as seen in rising prices and in both personal and governmental debt (US fiscal cliff, Latin American debt crisis, Greek debt crisis, etc.).

* Samuelson (and Mankiw) correctly assigns elasticity to Supply, while Case and Fair assigns it to Demand. Both assign ceteris paribus or a non-changing universe which is a very obvious fallacy
** We define slavery as a regular state of control of another's actions that produces pain. We replace the jargon 'elastic' and 'inelastic' with easy-to-understand words: 'price-sensitive' and 'price-insensitive'.

Update 10/2015:

Looking back at theWealth of Nations, I found that Smith did mention that a commodity can be 'perfectly inelastic' if it matches the following conditions:

rhino-hornRhino horns are now worth more than gold or cocaine and is the cause of their extinction.

However, it is obvious that such goods are not only attended with immorality, but are simply illegal just as slavery is illegal. Thus, it is still consistent with the earlier conclusion.

Update Jan 2021: Teaching such a policy in schools would lead to extinction just as it led to the extinction of some species. It would be illogical for a human school to knowingly teach something that will render humans extinct -- unless they didn't know it. The purpose of this post is to tell them that what they are teaching can actually make humans extinct eventually. The Covid pandemic is an easy proof, as it came from the destruction of the environment.


Update 10/2016 (This post seems to get a lot of hits, so I'll update it)

Merging the old question with Smith's quote can help us create a new, more realistic question below.

Updated question: The market price of Rhino horns rose in Vietnam sharply last month, but the quantity supplied was the same as ever. What is the explanation?

SORAnomist Answer

There was a sudden demand for rhino horns because of a rumor that it could cure cancer. Since rhinos are endangered, the production of their horns could not be increased. The increased demand increased the penalties imposed by the law, leading to higher prices for the smugglers who must offset the higher risk or increasedbribe payments, adding to the cost. Unlike the economist's vertical supply line, the supply line will still be downward sloping, to match Smith's maxim:

"The natural price is the central price, to which the prices of all commodities are continually gravitating.Different accidentsmay sometimes keep them suspendeda good deal above it.. But.. they are constantly tending towards it"

smithinelastic
The yellow and green lines represent the demand and supply curves before the rumor (representingnatural demand and supply thereforenatural price), while the blue and red lines represent those lines after the rumor.
rhino