- The Invisible Hand dictates that economies are generally predictable even if they are Complex Systems.
- This holds for as long as two principles hold
- That there is enough competition among buyers and sellers
- That all agents in the economy operate with rationality.
- It also suggests that Pareto optimality can be achieved even among selfish agents 1
- Supply and demand reveal themselves through the behaviors of producers and consumers.
- All choices are governed by tradeoffs due to scarcity of resources
- Every market is more or less subject to the laws of supply and demand. We can analyze the dynamics of the market using a four step process that analyzes the relationship between the two.
- Identify the supply and demand curves and the equilibrium point
- Decide whether the economic change affects supply and demand
- Decide how it affects supply or demand (does it induce a shift to the right or the left) . If there are multiple variables and effects, analyze each individually.
- Compare the new equilibrium to the old equilibrium
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