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Market Efficiency

The core of the classical model of competitive markets is the claim that an uncoerced person can be depended upon to act rationally to maximize his or her individual self-interest; and, more important, that an automatic, self-regulating mechanism to manage economic affairs is possible if it is built on the foundation of this basic human nature. Free individual choices are expected to overcome scarcity and result in the common good through the automatic adjustments of free exchange in markets. The forces of competition ensure that the economy produces the goods people desire and that those goods are produced in the most efficient way. This is the result of the “invisible hand” of competition.

Thus, economists argue that the best way for economic problems to be solved ...

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