Question

Consider the coordination problems inherent in providing food for the people of Accra. Every day, millions of people walk into a store and find particular food products they want. Large amounts of staples need to be available, as well as smaller amounts of a huge number of ethnic and specialty foods. Some of the food is grown nearby, and some of it comes from around the world. Some products have a long shelf life, but others are fresh and needs to be put on shelves just shortly before being bought. If you were asked to be in charge of coordinating the provisions of food for Accra, you would probably flee in panic; even with the most modern computers you could not do the job adequately. In fact there is no coordinator of food for Accra, and still the job of provisioning the city gets done very well, every day. Using the concepts of supply and demand, show how the decentralized market achieves this task.

Answer 1

The provisioning of food done promptly conveys one thing, that is the food market is at equilibrium: demand equals supply. Since the market is decentralized, we necessarily get one information about the suppliers which is that all the goods being supplied are traded due to the constant demand from million people for staples and speciality foods thus suppliers can well expect positive payoffs. Any average human being at the first look might get startled by the amount of complexity in alloting provisions to over a million people. But we need to understand that this decentralized market model ensures that the no supplier is has a significant market power and offer products at fair prices according to the demand. With over a million people demanding, the market achieves equilibrium itself due to these factors.

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