5 - Capitalism

Question 1

Explain the Invisible Hand

Answer 1

When a good is demanded and it is produced, demand will drastically increase. Eventually, the supply will drop (too many buyers) and will be in equilibrium.

I.e. The selfish desire of entrepreneurs to make money allows for an efficient economy to be formed.

Question 2

Role of Prices in a market economy

Answer 2

The role of prices is to provide info reflecting the scarcity of goods offered in that market with relation to the quantity demanded.

Question 3

Why is market discipline necessary

Answer 3

Allows consumers to freely choose between diff alternative products (subs) and know which ones best suits their needs. So, consumers need enough info (prices) and diff goods to choose from.

Question 4

When does market discipline fail?

Answer 4

When illegal practices (e.g. cartels) take place. Liberalism puts laws in place to prevent this to occur and restore free competition.