Economics SL
Economics SL
4
Chapters
96
Notes
Unit 1 - Intro to Econ & Core Concepts
Unit 1 - Intro to Econ & Core Concepts
Unit 2 - Microeconomics
Unit 2 - Microeconomics
Unit 3 - Macroeconomics
Unit 3 - Macroeconomics
Unit 4 - The Global Economy
Unit 4 - The Global Economy
IB Resources
Unit 2 - Microeconomics
Economics SL
Economics SL

Unit 2 - Microeconomics

Understanding The Invisible Hand: The Price Mechanism's Role

Word Count Emoji
607 words
Reading Time Emoji
4 mins read
Updated at Emoji
Last edited on 5th Nov 2024

Table of content

Holler! Welcome to the grand theatre of economics! Today's showstopper is the ever-efficient Price Mechanism, often referred to as the 'Invisible Hand'. Originated from the brain of the genius Adam Smith, this hand doesn't need gloves, but plays a vital role in balancing our market. But how? Sit tight and read on!

Introduction to the price mechanism

The Price Mechanism is like the maestro of an orchestra, but for markets. It helps achieve equilibrium or a balance between the forces of demand and supply. Imagine a bustling marketplace with sellers peddling all sorts of goods and consumers busy shopping. Now, a change in either demand or supply of a product can rock the equilibrium boat, leading to a change in its price. This is where the invisible hand waves its magic wand - the price change acts as a signal and sets off incentives, adjusting production and reallocating scarce resources.

Real world example - the kale tale

Let's chew on the green leafy vegetable, Kale. Suddenly, everyone is raving about its health benefits and nutritional value. This causes the demand for Kale to increase.

Market equilibrium

The market was originally at equilibrium point 'h', where the price was P1 per unit, and the quantity was Q1. But the kale craze caused a rightward shift in the demand curve from D1 to D2. The excess demand at P1 leads to an upward pressure on the price of Kale.

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IB Resources
Unit 2 - Microeconomics
Economics SL
Economics SL

Unit 2 - Microeconomics

Understanding The Invisible Hand: The Price Mechanism's Role

Word Count Emoji
607 words
Reading Time Emoji
4 mins read
Updated at Emoji
Last edited on 5th Nov 2024

Table of content

Holler! Welcome to the grand theatre of economics! Today's showstopper is the ever-efficient Price Mechanism, often referred to as the 'Invisible Hand'. Originated from the brain of the genius Adam Smith, this hand doesn't need gloves, but plays a vital role in balancing our market. But how? Sit tight and read on!

Introduction to the price mechanism

The Price Mechanism is like the maestro of an orchestra, but for markets. It helps achieve equilibrium or a balance between the forces of demand and supply. Imagine a bustling marketplace with sellers peddling all sorts of goods and consumers busy shopping. Now, a change in either demand or supply of a product can rock the equilibrium boat, leading to a change in its price. This is where the invisible hand waves its magic wand - the price change acts as a signal and sets off incentives, adjusting production and reallocating scarce resources.

Real world example - the kale tale

Let's chew on the green leafy vegetable, Kale. Suddenly, everyone is raving about its health benefits and nutritional value. This causes the demand for Kale to increase.

Market equilibrium

The market was originally at equilibrium point 'h', where the price was P1 per unit, and the quantity was Q1. But the kale craze caused a rightward shift in the demand curve from D1 to D2. The excess demand at P1 leads to an upward pressure on the price of Kale.

Unlock the Full Content! File Is Locked Emoji

Dive deeper and gain exclusive access to premium files of Economics SL. Subscribe now and get closer to that 45 🌟