> Newtonian physics is a model approximating reality, but it breaks down if you analyze cases that can be safely ignored for many engineering purposes, like traveling at high speeds.
It's a very good approximation and there are special cases that it doesn't work. But for a practical human life-scale reality almost all of daily use technology is based on these laws.
Does the supply/demand work in all situations? No, you need to have a at least some resemblance of a free market to let the market forces work.
The reasons we know that this law is working are not only empirical understanding (try selling your laptop on ebay and you'll empirically understand why) but there were at least 2 testing approaches that validated it:
1) Experimental validation via:
- Market simulation: Repeated trading rounds (Chamberlin, Smith) show prices converging to equilibrium when participants learn from prior outcomes. Public price data accelerates this process.
- Random coefficients logit models: Isolate price-quantity relationships by controlling for unobserved factors like brand loyalty.
- Industry analyses: Cement and airline markets demonstrate markup adjustments aligning with supply-demand predictions under competition.
- Instrumental variables: Cost shifters (e.g., raw material prices) validate causal price-quantity responses.
> It’s weird that people try to explain the world with supply and demand as if everyone else was an idiot who doesn’t understand simple truths about the world, while in reality they are the ones who doesn’t appreciate the complexity of things like urban development.
This is a strange argument. So basically the supply/demand curve works, but there are some consequences if you change the supply. Yes, they are. But if you want to have cheaper housing you will not save it if you don't build more even if there are other negatives from increased supply. And yes, urban development might be complicated, but the basics of "people need to live somewhere" is not. You might get favelas like in Brazil, but if your city grows and you don't build, because the people in the government and landlords get squeeze more profit from the market the problem will not be solved.
It's a very good approximation and there are special cases that it doesn't work. But for a practical human life-scale reality almost all of daily use technology is based on these laws.
Does the supply/demand work in all situations? No, you need to have a at least some resemblance of a free market to let the market forces work.
The reasons we know that this law is working are not only empirical understanding (try selling your laptop on ebay and you'll empirically understand why) but there were at least 2 testing approaches that validated it:
1) Experimental validation via:
- Market simulation: Repeated trading rounds (Chamberlin, Smith) show prices converging to equilibrium when participants learn from prior outcomes. Public price data accelerates this process.
- Policy tests: Lab experiments confirm tax/price controls create predictable shortages (e.g., rent controls reducing housing availability).
2) Modeling approaches:
- Random coefficients logit models: Isolate price-quantity relationships by controlling for unobserved factors like brand loyalty.
- Industry analyses: Cement and airline markets demonstrate markup adjustments aligning with supply-demand predictions under competition.
- Instrumental variables: Cost shifters (e.g., raw material prices) validate causal price-quantity responses.
> It’s weird that people try to explain the world with supply and demand as if everyone else was an idiot who doesn’t understand simple truths about the world, while in reality they are the ones who doesn’t appreciate the complexity of things like urban development.
This is a strange argument. So basically the supply/demand curve works, but there are some consequences if you change the supply. Yes, they are. But if you want to have cheaper housing you will not save it if you don't build more even if there are other negatives from increased supply. And yes, urban development might be complicated, but the basics of "people need to live somewhere" is not. You might get favelas like in Brazil, but if your city grows and you don't build, because the people in the government and landlords get squeeze more profit from the market the problem will not be solved.