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.

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Show 1 Answer (Answer provided by Alex Tabarrok)
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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.

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Show 1 Answer (Answer provided by Ion Sterpan)
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The answer to the first question is yes. Technology" in the widest sense means "way of doing things". Imagine a competitive process in a industry where at first, the members of that industry have different ways of doing things. Some of them make more profits some less. The concept of competitive market assumes that each member of the industry sees, understands, and can copy the others' technology. The ones who make less profit will naturally imitate the ones who make more. The concept of competitive markets also means that non-members of the industry can easily enter the industry and "compete on price", which means to replicate the production process but sell cheaper. The same concept means that entrants are practically infinitely many. Thi smeans there will always some new competitor coming in to compete on price. The equilibrium outcome is thus that given a technology, entry will erode profits to zero. What can you do then do make a profit in a competitive market? Come up with a new way of doing things. And make money for as long as it takes other to imitate you.
The answer to the second question is no, as you already guessed when you said "absurd". Education is a service performed by people - teachers. If teachers knew which new technologies will make a profit, they would do business instead of teaching. What teachers can do though is to a) teach students to be open to the 'idea' of commercial innovation and teach students to recognize the kinds of non-commercial innovation that destroy wealth (various kinds of fraud, theft and political enterprises whose object is to transfer wealth from some groups to others).

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