From: "Lev Lafayette" In contrast I don't see much argument against a core economic principles, for example, that if the supply of a good is restricted the price goes up, or if the price is increased the demand is reduced.
For sure... I think a lot of economic principles are true at a zeroeth approximation, even a first approximation, but not much past that point. Take for example, your suggestion that when prices go up the demand is reduced. This is true sometimes. For example, when customers take price to be a signal of quality, demand can go *up* when the price is increased. I experienced this during my consulting career when, after increasing my rate, the demand went up. Shops like jewelry shops and other outlets for status goods also tend to find demand can go up when the price is increased. Another example, a very important one, is asset markets. After a long bull run in the US stock market, various indicators of investor demand are at all-time *highs* (margin lending, AAII sentiment, put/call ratios etc). When house prices rise, people can get more desperate to get in "before it's too late". The price is up and the demand has gone up as a result! Having studied both economics (intermittently since 1971) and physics (intermittently since about 2007), I find that the big difference is that the physicists tend to take their models a lot less seriously than the economists. Simplifications like "perfect markets" are very useful abstractions, which help to explain much. But one should not confuse real markets with perfect markets. As another example the efficient markets hypothesis is true to a zeroeth degree, but it depends on efficient arbitrage which breaks down in all sorts of ways (agency problems, risk that cannot be gotten rid of, regulatory impediments to competition etc). Witness also the long delays in recognizing - and hostility to those pointing out - the non-normality of fluctuations in financial market prices (see eg Mandelbrot's autobiography). And this non-normality is not a small issue. Out in the margins, it means the risks are thousands of times higher than the standard models would suggest.