Note: This is post #46 in a weekly video series on basic microeconomics.
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, explains Alex Tabarrok. If these conditions aren’t met, market inefficiencies arise and the Invisible Hand cannot do its work. In this video by Marginal Revolution University, Tabarrok shows 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.
(If you find the pace of the videos too slow, I’d recommend watching them at 1.5 to 2 times the speed. You can adjust the speed at which the video plays by clicking on “Settings” (the gear symbol) and changing “Speed” from normal to 1.25, 1.5 or 2.)
Previous in series: How the invisible hand reduces industry costs