Israel Kirzner explains one of the basic elements of economics: the law of supply and demand, as well as the model for price determination in a market and elaborates on why and how, viewed from an Austrian perspective, this economic model works.
He refers to Friedrich A. Hayek's insight on equilibrium and disequilibrium, indicating that the first term refers to a situation in which every market participant correctly anticipates what every other member involved will do, contrary to the incomplete and incorrect mutual anticipation that is disequilibrium.
Kirzner also tells about the two kinds of errors present in the market, overoptimism, referring to seeing something that is not there, which leads to disappointment, shortage, and surplus; and overpessimism, which means a failure to see something that was really there and has, as an outcome, two or more prices.
He closes by stating that the market process is one of spontaneous learning, correction of error, and of mutual coordination.
Israel Kirzner is a leading economist of the Austrian School of…
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Universidad Francisco Marroquín