MGEA02H3 Lecture Notes - Lecture 13: Invisible Hand, Demand Curve, Economic Equilibrium
182 views2 pages
MGEA02 – Lecture 13 Perfect Competition
●When there is a positive shock to the demand curve the market reallocates its resources as if
by an invisible hand (Adam Smith)
●Competitions acts as an invisible hand to serve the common good even though ech firm is
serving their own interests
●Below is the result of a positive shock to the demand curve in PC.
●The top two diagrams represent the original equilibrium for each firm and the industry.
● The bottom two show the result of a positive shock to the demand curve, showing the new
equilibrium price and quantity, and profit (filled in with cream).
●In the third row it shows the result of a negative shock on the demand curve, resulting in a
loss to each firm