Question

Russell Roberts, The Price of Everything: A Parable of Possibility and Prosperity

In the story, Professor Lieber states emphatically, “no one can make a pencil.” 1) Give a detailed explanation of why this is true, and 2) why, in spite of “no one in charge,” just the right amount of pencils gets made anyway. In part 2 of your answer, you must apply the basic economic logic of supply and demand analysis to describe and explain the argument.

Answer 1

1.Russel Robert’s, The Price of Everything: A Parable of Possibility and Prosperity is a book that contains a story that speaks about the economic growth and the unseen forces that creates and sustains the economic harmony around us. In this context, the statement made by Professor Lieber in it is noteworthy. He states the economy of pencilmaking and firmly states that no one will dare to make a pencil for himself/herself. The statement which seems awkward in the first will prove to be right when the economy behind its making is realised. The pencil consists of led, wood and other manufacturing processes. The led inside the pencil is a compressed graphite which takes another manufacturing entity to process it. The paint, the glue etc are other materials that forms a major part in the manufacturing process of a pencil. Now if we imagine the economic burden and the cost analysis, we can see that production of even this small commodity requires a lot of effort and cost. The process of bulk manufacturing is the thing that makes this process of manufacturing pencils a reality. Thus when the economy behind pencil manufacturing is analysed, it can be seen that the statement made by the professor is correct.

2.In the next analysis, it is said that even without nobody taking charge of manufacturing pencils globally, it is seen that just the right amount of pencils gets manufactured. In this case, it has to be understood that an economy functions with the help of an invisible hand of supply and demand. This unseen force of the free market mechanism was explained by Adam Smith in his ‘Wealth of Nations’. He gives an explanation that the unseen forces of supply and demand sustains an economy. It states that a product gets manufactured only depending upon the demand it has in the market. Thus analysis of a market behaviour forms the basis of marketing strategy. In accordance with the demand the market has, products are being manufactured and supplied in to the market and this circular process of demand, manufacturing, marketing and supply goes on in an economy. Thus an economy finds its way of equilibrium even without the intervention of any external forces.