| > But we do see prices approach optimal. Where do you see that? What does it even mean, how can you objectively tell what is the optimal price for a good or service, so that you can later say that the market converged to it? For example, is 1000$ the optimal price for an iPhone? Or is it simply the price Apple chose? If they sold it for 500$, would they make more or less money? How do you know? > And clearly markets do follow the law of supply demand at the macro level, when long periods of time are considered, otherwise commodity pricing would be entirely arbitrary and wouldn’t in anyway reflect the value of the commodity to society at large. I would argue that it often is, at least for many non-essential products. The price of many non-essential goods is much much higher than the price of essentials, even when those non-essential goods are cheap and easy to manufacture (say, softdrinks or many cosmetics). The price of most energy resources is largely controlled by non-market forces, even on the face of it. Also, why restrict this discussion to commodities? If we switch to investments, the price of stocks is quite obviously arbitrary as well, with "market makers" often controlling the allowed prices (or at least, price volatility) for stock. The price of real-estate is often determined to a large extent by the price of borrowing, and that is quite explicitly set by banks and the central bank based on nothing related to supply and demand. Services are even more complex, with huge variations in price based on entirely subjective factors. |
Because they’re generally pretty fungible, and have a larger number of sellers and buyers involved in the market, hence their markets are more likely to behave like an ideal market. The same does not apply to housing, or services.
> Where do you see that? What does it even mean, how can you objectively tell what is the optimal price for a good or service, so that you can later say that the market converged to it?
For commodities, I would point to the reasonable price stability that exists. As evidenced by the fact that basic goods don’t frequently suffer from repeated shortages or gluts of supply. Strongly indicating that the price is both high enough to incentivise production, and stable/low enough to allow for relatively low risk long term investment in production, because continuous long term demand is expected.
> For example, is 1000$ the optimal price for an iPhone? Or is it simply the price Apple chose? If they sold it for 500$, would they make more or less money? How do you know?
These is nothing about the iPhone market that suggests it’s anything close to an ideal market (for one Apple have a monopoly on iPhone sales), so I don’t know why you would expect it to behave like an ideal market.
> The price of real-estate is often determined to a large extent by the price of borrowing, and that is quite explicitly set by banks and the central bank based on nothing related to supply and demand. Services are even more complex, with huge variations in price based on entirely subjective factors.
What’s your point? Of course a law describing how ideal markets work doesn’t correctly describe markets well know for being extremely distorted and non-ideal. Next you’re going to tell me Newtons laws of motions are all useless because they can’t help you model the behaviour of objects travelling at relativistic speeds.
You seem to be struggling with the idea that a model doesn’t need to be perfect, or applicable to every real world scenario, to be useful. All models have their limits, that no surprise to anyone. That doesn’t make them useless, it just means you need to be aware of limitations, and adjust expectations appropriately.