Competitive market economy will make the needed adjustments

Question

Briefly explain how the competitive market economy will make the needed adjustments to reestablish an efficient allocation of society’s scarce resources?

Answer 1

They will also be able to pay higher wages and bid workers away from alternative employment.  Bagel manufacturing firms will also be willing to pay higher prices for flour and other ingredients.  They will be likely to buy additional capital equipment and expand their facilities.  Cereal manufacturers will cut production, lay off workers and reduce purchases of materials.  They may have to close facilities and offer their used capital equipment and unneeded land for sale at reduced prices.