> People keep saying supply and demand is a broken theory, but I'm not sure how to interpret that.
It is broken, especially in macroeconomics. On micro level, it is less problematic, although the main criticism of atq2119 in this thread is correct. The things wrong with it are roughly the supply and demand curves, the idea of equilibrium (assumption of its existence and uniqueness) and the approach that is inherently one-sided - one market at a time.
> When oil prices fall some producers seem to shut off their pumps. When restaurants raise their prices the people I know tend to cook at home more.
This is a strawman. These actually do not follow from the supply and demand itself, but rather from indifference curves (although utility theory has its problems too). Unfortunately, the theory of supply and demand doesn't treat multiple different products very well (even in substitution).
> I have a hard time imagining what those worlds would look like, so I expect your critique is far more nuanced.
I understand. You don't know the alternative, so you cannot imagine a different world.
If you want a good overview of the criticism, read Steve Keen's Debunking Economics. He has two chapters devoted to problems of the supply and demand theory.
And if you want see alternative, which is completely superior (gives intuitively similar results and more, requires less parameters and is easier to extend), I suggest the treatment in Blatt: Dynamic Economic Systems, first part. (This was also suggested to me courtesy of Steve Keen, but boy, it is good. Keen is not to everybody's taste, but everyone in economics should read Blatt. He is the most forgotten of all forgotten economists. Although I think the approach is not his own, I think it goes back to von Neumann, but I don't know how it is called.)
> then it seems we all agree on the general principles in broad strokes, and we don't need to throw out supply and demand after all
I disagree, we need to throw it out, because there is a much better alternative approach. See above.
It is broken, especially in macroeconomics. On micro level, it is less problematic, although the main criticism of atq2119 in this thread is correct. The things wrong with it are roughly the supply and demand curves, the idea of equilibrium (assumption of its existence and uniqueness) and the approach that is inherently one-sided - one market at a time.
> When oil prices fall some producers seem to shut off their pumps. When restaurants raise their prices the people I know tend to cook at home more.
This is a strawman. These actually do not follow from the supply and demand itself, but rather from indifference curves (although utility theory has its problems too). Unfortunately, the theory of supply and demand doesn't treat multiple different products very well (even in substitution).
> I have a hard time imagining what those worlds would look like, so I expect your critique is far more nuanced.
I understand. You don't know the alternative, so you cannot imagine a different world.
If you want a good overview of the criticism, read Steve Keen's Debunking Economics. He has two chapters devoted to problems of the supply and demand theory.
And if you want see alternative, which is completely superior (gives intuitively similar results and more, requires less parameters and is easier to extend), I suggest the treatment in Blatt: Dynamic Economic Systems, first part. (This was also suggested to me courtesy of Steve Keen, but boy, it is good. Keen is not to everybody's taste, but everyone in economics should read Blatt. He is the most forgotten of all forgotten economists. Although I think the approach is not his own, I think it goes back to von Neumann, but I don't know how it is called.)
> then it seems we all agree on the general principles in broad strokes, and we don't need to throw out supply and demand after all
I disagree, we need to throw it out, because there is a much better alternative approach. See above.