One Model, Three Markets, Worked

The idea

One method covers every market in this course, and running it three times on three markets shows that the differences are names, not logic. In each case the four steps are the same. Draw the market before the event, with quantity on the horizontal axis and the market's price on the vertical: a dollar price for a good, a wage for labor, an interest rate for funds. Decide which side the event touches, buyers or sellers, and remember who those are: households buy goods and sell labor and funds, while firms sell goods and buy labor and funds. Decide the direction and draw the shift. Read the new equilibrium against the old. The vocabulary changes with the market. Too much at the going price is a surplus of a good, unemployment in the labor market, and idle funds in the credit market; too little is a shortage, unfilled posts, and refused borrowers. A legal price becomes a price ceiling, a minimum wage or a usury cap, and the binding test is identical in each: the law matters only when it forbids the equilibrium. What the model rules out is also the same everywhere. A change in the market's own price never shifts its own curves, and a shift in one curve moves along the other. A student who can run the four steps on a goods market can run them anywhere by asking two questions first: what is traded, and what is its price called here.