But, the IH works only in markets where the conditions of perfect.

             competition are met. These conditions are: "many firms sell identical.

             products to many buyers; there are no restrictions on entry into the.

             industry; established firms have no advantage over new ones; and, sellers.

             and buyers are well informed about the prices." Parkin, ECONOMICS, 5TH ED.,.

             pp. 240. In a perfectly competitive market, each seller faces an infinitely.

             elastic demand curve - he is a price taker able to sell only at the single,.

             market price. Facing a flat, perfectly elastic demand curve, the seller will.

             fail unless able to make a profit at the market price. This is the resource.

             allocation feature of the IH.

             This feature works only in the rarified atmosphere of perfect competition.

             In less than perfect competition sellers do not face perfectly elastic.

             demand curves, they face downward sloping demand curves. But, if sellers.

             face downward sloping demand curves, they are able to raise prices instead.

             of failing; this interferes with the most efficient resource allocation.

             process. In the theoretical world, any single market that is less than.

             perfectly competitive results in less than the optimal, perfectly efficient.

             allocation of resources. Thus, the IH is an inadequate theory because it.

             requires a very rigid set of circumstances to predict outcomes and,.

             consequently, is not a good model upon which to base policy decisions.

             Practical Flaws with Invisible Hand.

             In the real world, there are very few perfectly competitive markets. Most.

             markets have some form of monopoly or monopolistic competition where each.

             seller is able to differentiate his products from other sellers. Thus the IH.

             breaks down as an explainer of modern reality. .

             Another problem with the IH is that it ignores the reality that in today's.

             world, government creates markets. Markets require information, products,.

             money and property rights, all of which are established and maintained by.