BIOCH498 Lecture Notes - Lecture 3: Production Quota, Demand Curve, Equilibrium Point
13 Jun 2015
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Document Summary
Economic forces ration commodities and services through changing prices. The market works like an invisible hand. Guiding economic forces to coordinate individual actions. Individuals acting in their own self interest. Guided by the invisible hand of the market. Produces allocation that are best for society. Information problems (we make mistakes all the time) - consumers and producers do not possess perfect information. They prevent some markets from clearing and prevent other markets from operating. Such as social and historical forces = invisible hand shake. Cultural norms = tradition (you are what you are depending on your parents" jobs); allow certain markets to operate if they are ethical. Legal and political forces = invisible foot. Sometimes things go wrong and market fails = invisible elbow (i. e. incorrect price signal causing the market to collapse) Ensure that market and activities conform to social, cultural, legal, and political norms. Government sets the maximum price for good/service (this is the highest price allowed)
