Consume, Rent and Own: Redrawing the Market on a Blank Canvas

Abstract

The aggregate trade in the market in a community must be accounted for per period of time. As such, the market consists of “flows.” Specifically, the flow of quantity traded is determined after interactions between the two flows of demand schedule and supply schedule; the former slopes downward and the latter upward for various reasons. In the period, a particular unit out of a stock quantity, fixed or not, can change hands zero to multiple times. No household would demand more of a “good” at a higher price. The household surely supplies more working hours at a higher wage rate. Then, the so-called “fixed supply” and “backward-bending curves” are counterfactual: they cannot be so in the given accounting period. Such a saying that the demand for liquidity slopes downward because the interest rate is the opportunity cost is also erroneous: demand must be defined in terms of benefit before being compared to its cost, or “price,” yet to be determined in the market. This essay aims to reevaluate, in hopes of correcting notable misconceptions in microeconomics, how demand and supply schedules should be defined in the product, the “production factor” and the asset markets.