So empirically, what is the difference between a market that hasn’t cleared vs. one that has, in your view?
Well, as I said, there is either excess supply or unsatisfied demand—that’s pretty empirical.
Take the old Soviet-style planned economies—they had lots of markets that didn’t clear. In the US, for example, there are certain things in very limited supply with more or less fixed prices—e.g. licenses to go photograph bears fishing for salmon on Katmai peninsula—they are allocated on the basis of lotteries. These markets don’t clear. In another example, financial markets sometimes have limits on price movement during one day—once that limit is reached, the price can go no further. In such cases these markets don’t clear either.
implies that we don’t end up with surplus inventories
We don’t end up with surplus inventories (mostly) because the situation is dynamic: both the prices and the people adjust over time.
Well, as I said, there is either excess supply or unsatisfied demand—that’s pretty empirical.
But you shifted it to “excess supply or unsatsified demand at the prevailing price” which is a much harder thing empirically. Demand is itself somewhat hard to measure, but supply is easy, just measure inventories.
You claim that “market clearing” doesn’t imply there are no excess inventories, I claim that it does.
We don’t end up with surplus inventories (mostly) because the situation is dynamic: both the prices and the people adjust over time
This is the definition of market clearing. The market clearing price is found, and everything sells.
So now it sounds like you agree that in a market that has “cleared,” everything sold.
Nah, I was just too lazy to type out the whole thing. I still mean “at the prevailing price”—note that all the examples I give work this way.
You claim that “market clearing” doesn’t imply there are no excess inventories, I claim that it does.
I am not sure what “excess inventories” are. But let’s take a simple example—a stock market. Let’s take IBM which closed tonight at $162.15. This was the market clearing price at the close and the market cleared. Even though the market cleared, the order book wasn’t empty—there were people willing to buy at, say, $162 and people willing to sell at, say, $163. Was there inventory? Sure. Was there excess inventory? I don’t know since I have not idea what it means.
The market clearing price is found, and everything sells.
See above. No, not everything sells.
So now it sounds like you agree that in a market that has “cleared,” everything sold.
No, that is wrong. A market that cleared is the market which found the market-clearing price and traded at that price all amounts that were there to be traded at that price. That does mean that “everything sold”—there is nothing which says that all goods on offer are on offer at the current market-clearing price. See the stock market example above.
Well, as I said, there is either excess supply or unsatisfied demand—that’s pretty empirical.
Take the old Soviet-style planned economies—they had lots of markets that didn’t clear. In the US, for example, there are certain things in very limited supply with more or less fixed prices—e.g. licenses to go photograph bears fishing for salmon on Katmai peninsula—they are allocated on the basis of lotteries. These markets don’t clear. In another example, financial markets sometimes have limits on price movement during one day—once that limit is reached, the price can go no further. In such cases these markets don’t clear either.
We don’t end up with surplus inventories (mostly) because the situation is dynamic: both the prices and the people adjust over time.
But you shifted it to “excess supply or unsatsified demand at the prevailing price” which is a much harder thing empirically. Demand is itself somewhat hard to measure, but supply is easy, just measure inventories.
You claim that “market clearing” doesn’t imply there are no excess inventories, I claim that it does.
This is the definition of market clearing. The market clearing price is found, and everything sells.
So now it sounds like you agree that in a market that has “cleared,” everything sold.
Nah, I was just too lazy to type out the whole thing. I still mean “at the prevailing price”—note that all the examples I give work this way.
I am not sure what “excess inventories” are. But let’s take a simple example—a stock market. Let’s take IBM which closed tonight at $162.15. This was the market clearing price at the close and the market cleared. Even though the market cleared, the order book wasn’t empty—there were people willing to buy at, say, $162 and people willing to sell at, say, $163. Was there inventory? Sure. Was there excess inventory? I don’t know since I have not idea what it means.
See above. No, not everything sells.
No, that is wrong. A market that cleared is the market which found the market-clearing price and traded at that price all amounts that were there to be traded at that price. That does mean that “everything sold”—there is nothing which says that all goods on offer are on offer at the current market-clearing price. See the stock market example above.