“ Invisible Hand”
Today we learned about the invisible hand in the economy. The invisible hand works in a market economy pushing the prices higher and lower. Market economy’s are controlled by individuals, the consumers. The way that they work is the supplier will put out advertisements for their idem. Depending on how popular the advertisements are the company will try and find the happy medium of how much they can sell it for and how much they can make off it. Say if u sell this amazing dog leash and it costs $2 to make and you sell it for $4 you make a two dollar profit. And if you sell it for only $4 dollars lots of people will buy it. About 1 million people at a $2 dollar profit a leash is a 2 million dollar profit. But say you want to sell it for more, around $7 for the leash and it still costs $2 to make but now only 850 000 people want it. You make 2 975 000 dollars. So now you make more leashes seeing its success. You re-invest $1 000 000 into it thinking you will get the same outcome and sell all of you leashes and get a $4 000 000 profit. But now other people see how well your leashes are selling so they make their own brand. To outdo them you must lower your prices as theirs is two dollars less. Now that your leash has competition you only make $3 profit on each.
In market economy’s consumers drive all economic decisions. The government has almost no say in can or can’t not be made to supply the consumers with what they want or need.
Supply and demand also pushes forward the economy. For example
If demand for the product goes up and stays there the supply will go down as people are buying it up so the price will go up as the company knows that more consumers want the idem even though it is in limited supply. If the price starts high though the demand from the consumers will decrease as not as many people can afford it so the company can over supply. Sometimes the Suppliers start with too much anticipating a bigger blow out that they actually got. When this happens he price will go down to encourage buyers to buy more and sell them out faster. When this happens demand goes up for the product and eventually so does the price. If other company’s see the success of another ones product they will sometimes imitate it, like the Xbox and PS3. Producers attract the consumers bye advertisements and lowering their prices. This forces the original company to lower their prices also.