![]() ![]() How does invisible hand deal with shortages? ![]() We don’t need a government to set an equilibrium price – the market price will automatically occur from all the actions of firms and supplies. This competitive pressure means that the price will fall – until there is an equilibrium between supply and demand. Consumers will then switch from the high-cost bread to the low cost bread. ![]() This creates an incentive for another baker to sell at a lower price, say £2. Suppose, a firm was charging a very high price for bread – £4 a loaf. The invisible hand means that by following their self-interest – consumers and firms can create an efficient allocation of resources for the whole of society. The invisible hand is a concept that – even without any observable intervention – free markets will determine an equilibrium in the supply and demand for goods. ![]()
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