The Balance of Industries and Creative Destruction

Why are price signals and market competition so important to a market economy? When prices accurately signal costs and benefits and markets are competitive, the

Why are price signals and market competition so important to a market economy? When prices accurately signal costs and benefits and markets are competitive, the Invisible Hand ensures that costs are minimized and production is maximized. If these conditions aren’t met, market inefficiencies arise and the Invisible Hand cannot do its work. In this video, we show how two major processes, creative destruction and the elimination principle, work with the Invisible Hand to create a competitive marketplace that works for producers and consumers.

Download
Options
Translate Practice Questions

Contributed Content (0)

Ask a Question

 
Show 1 Answer (Answer provided by Alex Tabarrok)
user's picture

Remember that we are discussing competitive industries. If some industries aren't competitive then profits will be higher in those industries and they will stay high. In such a case, we do not get a balance across industries and in fact we will get too few resources in the highly profitable industry.

Please register or login to answer a question
 
user's picture
Please register or login to ask a question