The Global Financial Crisis

[1] There is a second, more abstract implication: we have to worry about whether all the markets in the economy are in equilibrium at the same time. In our analyses, we have looked at only one market at a time. But we now know that the outcome in one market (for example, the real wage) can affect supply and demand in other markets (for example, the supply of credit). In advanced studies in economics, we use complicated mathematics to see if there are prices that are consistent with all the markets being in equilibrium at once. The bottom line is good news: we can usually be confident that there is an equilibrium for all markets. But because this is such an advanced area of economics, we do not worry about it further in this book. [2] We discuss such policies in detail “The Global Financial Crisis”. [3] John Tozzi, “How to Tell Business Is Cutting Back,” Bloomberg In Conclusion The supply-and-demand framework is almost certainly the most powerful model in the economist’s toolkit. Armed with an understanding of this framework, you can make sense of much economic news, and you can make intelligent predictions about future changes in prices. A true understanding of this framework is more than just an ability to shift curves around, however. It is an understanding of how markets and prices are one of the main ways in which the world is interlinked. Markets are, quite simply, at the heart of economic life. Markets are the means by which suppliers and demanders of goods and services can meet and exchange their wares. Since exchange creates value—because it makes both buyers and sellers better off—markets are the means by which our economy can prosper. Markets are the means by which economic activity is coordinated in our economy, allowing us to specialize in what we do best and to buy other goods and services.