微觀經(jīng)濟(jì)學(xué)原理曼昆英文第七章課件

Consumers,Producers,

andtheEfficiencyofMarketsEconomicsPRINCIPLESOFN.GregoryMankiw7Consumers,Producers,

andtheInthischapter,

lookfortheanswerstothesequestions:Whatisconsumersurplus?Howisitrelatedtothedemandcurve?Whatisproducersurplus?Howisitrelatedtothesupplycurve?Domarketsproduceadesirableallocationofresources?Orcouldthemarketoutcomebeimprovedupon?1.Inthischapter,

lookforthe1WelfareEconomicsRecall,theallocationofresourcesrefersto:howmuchofeachgoodisproducedwhichproducersproduceitwhichconsumersconsumeitWelfareeconomicsstudieshowtheallocationofresourcesaffectseconomicwell-being.First,welookatthewell-beingofconsumers..2WelfareEconomicsRecall,theaWillingnesstoPay(WTP)Abuyer’swillingnesstopayforagoodisthemaximumamountthebuyerwillpayforthatgood.WTPWTPAnthony$250Chad175Flea300John125Example:

4buyers’WTP

foraniPod.3WillingnesstoPay(WTP)AbuyeWTPandtheDemandCurveQ:

IfpriceofiPodis$200,whowillbuyaniPod,andwhatisquantitydemanded?A: Anthony&FleawillbuyaniPod,Chad&Johnwillnot. Hence,Qd=2

whenP=$200.nameWTPAnthony$250Chad175Flea300John125.4WTPandtheDemandCurveQ: IfWTPandtheDemandCurveDerivethedemandschedule:4John,Chad,

Anthony,Flea0–1253Chad,Anthony,

Flea126–1752Anthony,Flea176–2501Flea251–3000nobody$301&upQdwhobuysP(price

ofiPod)nameWTPAnthony$250Chad175Flea300John125.5WTPandtheDemandCurveDeriveWTPandtheDemandCurvePQd$301&up0251–3001176–2502126–17530–1254PQ.6WTPandtheDemandCurvePQd$30AbouttheStaircaseShape…ThisDcurvelookslikeastaircase

with4steps–oneperbuyer.PQIftherewereahuge#ofbuyers,asinacompetitivemarket,therewouldbeahuge#

ofverytinysteps,anditwouldlookmorelikeasmoothcurve..7AbouttheStaircaseShape…ThisWTPandtheDemandCurveAtanyQ,

theheightof

theDcurveistheWTPofthemarginalbuyer,thebuyerwhowouldleavethemarketifPwereanyhigher.PQFlea’sWTPAnthony’sWTPChad’sWTPJohn’s

WTP.8WTPandtheDemandCurveAtanyConsumerSurplus(CS)Consumersurplusistheamountabuyeriswillingtopayminustheamountthebuyeractuallypays: CS=WTP–PnameWTPAnthony$250Chad175Flea300John125SupposeP=$260.Flea’sCS=$300–260=$40.TheothersgetnoCSbecausetheydonotbuyaniPodatthisprice.TotalCS=$40..9ConsumerSurplus(CS)ConsumerCSandtheDemandCurvePQFlea’sWTPP=$260Flea’sCS=

$300–260=$40TotalCS=$40.10CSandtheDemandCurvePQFlea’CSandtheDemandCurvePQFlea’sWTPAnthony’sWTPInstead,suppose

P=$220Flea’sCS=

$300–220=$80Anthony’sCS=

$250–220=$30TotalCS=$110.11CSandtheDemandCurvePQFlea’CSandtheDemandCurvePQThelesson:TotalCSequalstheareaunder

thedemandcurveabovetheprice,from0toQ..12CSandtheDemandCurvePQThelPQ$CSwithLotsofBuyers&aSmoothDCurveThedemandforshoesD1000sofpairsofshoesPrice

perpairAtQ=5(thousand),themarginalbuyeriswillingtopay$50forpairofshoes.SupposeP=$30.Thenhisconsumersurplus=$20..13PQ$CSwithLotsofBuyers&aPQCSwithLotsofBuyers&aSmoothDCurveThedemandforshoesDCSistheareab/wPandtheDcurve,from0toQ.Recall:areaof

atriangleequals

?xbasexheightHeight=

$60–30=$30.So,

CS=?x15x$30

=$225.h$.14PQCSwithLotsofBuyers&aSPQHowaHigherPriceReducesCSDIfPrisesto$40,CS=?x10x$20

=$100.TworeasonsforthefallinCS.1. FallinCS

duetobuyersleavingmarket2. FallinCSduetoremainingbuyers

payinghigherP.15PQHowaHigherPriceReducesC16PQdemandcurveA.

Findmarginalbuyer’sWTPat

Q=10.B.

FindCSfor

P=$30.SupposePfallsto$20.

HowmuchwillCSincreasedueto…C.

buyersentering

themarketD.

existingbuyerspayinglowerprice$ACTIVELEARNING1

Consumersurplus.16PQdemandcurveA. Findmargi16CostandtheSupplyCurvenamecostJack$10Janet20Chrissy35Asellerwillproduceandsellthegood/serviceonlyifthe

priceexceedshisorhercost.Hence,costisameasureofwillingnesstosell.Costisthevalueofeverythingasellermustgiveuptoproduceagood(i.e.,opportunitycost).Includescostofallresourcesusedtoproducegood,includingvalueoftheseller’stime.Example:Costsof3sellersinthelawn-cuttingbusiness..17CostandtheSupplyCurvenamecCostandtheSupplyCurve335&up220–34110–190$0–9QsPDerivethesupplyschedulefromthecostdata:namecostJack$10Janet20Chrissy35.18CostandtheSupplyCurve335&CostandtheSupplyCurvePQPQs$0–9010–19120–34235&up3.19CostandtheSupplyCurvePQPQsCostandtheSupplyCurvePQAteachQ,

theheightof

theScurve

isthecostofthemarginalseller,

thesellerwhowouldleave

themarketif

thepricewereanylower.Chrissy’s

costJanet’scostJack’scost.20CostandtheSupplyCurvePQAtProducerSurplusPQProducersurplus(PS):theamountaseller

ispaidforagood

minustheseller’scostPS=P–cost.21ProducerSurplusPQProducersurProducerSurplusandtheSCurvePQPS=P–costSupposeP=$25.Jack’sPS=$15Janet’sPS=$5Chrissy’sPS=$0TotalPS=$20Janet’scostJack’scostTotalPSequalstheareaabovethesupplycurveundertheprice,from0toQ.Chrissy’s

cost.22ProducerSurplusandtheSCurPQPSwithLotsofSellers&aSmoothSCurveThesupplyofshoesS1000sofpairsofshoesPrice

perpairSupposeP=$40.AtQ=15(thousand),themarginalseller’scostis$30,andherproducersurplusis$10..23PQPSwithLotsofSellers&aPQPSwithLotsofSellers&aSmoothSCurveThesupplyofshoesSPSistheareab/w

PandtheScurve,from0toQ.Theheightofthistriangleis

$40–15=$25.So,

PS=?xbxh

=?x25x$25

=$312.50h.24PQPSwithLotsofSellers&aPQHowaLowerPriceReducesPSIfPfallsto$30,PS=?x15x$15

=$112.50TworeasonsforthefallinPS.S1. FallinPS

duetosellersleavingmarket2. FallinPSduetoremainingsellers

gettinglowerP.25PQHowaLowerPriceReducesPSPQsupplycurveA.

Findmarginal

seller’scost

atQ=10.B.

FindtotalPSfor

P=$20.SupposePrisesto$30.

Findtheincrease

inPSdueto…C.

selling5

additionalunitsD.

gettingahigherpriceontheinitial10units26ACTIVELEARNING2

Producersurplus.PQsupplycurveA. Findmargina26CS,PS,andTotalSurplusCS=(valuetobuyers)–(amountpaidbybuyers) = buyers’gainsfromparticipatinginthemarketPS=(amountreceivedbysellers)–(costtosellers) =sellers’gainsfromparticipatinginthemarketTotalsurplus=CS+PS =totalgainsfromtradeinamarket =(valuetobuyers)–(costtosellers).27CS,PS,andTotalSurplusCS=TheMarket’sAllocationofResourcesInamarketeconomy,theallocationofresources

isdecentralized,determinedbytheinteractions

ofmanyself-interestedbuyersandsellers.Isthemarket’sallocationofresourcesdesirable?Orwouldadifferentallocationofresourcesmakesocietybetteroff?Toanswerthis,weusetotalsurplusasameasureofsociety’swell-being,andweconsiderwhetherthemarket’sallocationisefficient. (Policymakersalsocareaboutequality,thougharefocushereisonefficiency.).28TheMarket’sAllocationofResEfficiencyAnallocationofresourcesisefficientifitmaximizestotalsurplus.Efficiencymeans:Thegoodsareconsumedbythebuyerswhovaluethemmosthighly.Thegoodsareproducedbytheproducerswiththelowestcosts.Raisingorloweringthequantityofagood

wouldnotincreasetotalsurplus.=(valuetobuyers)–(costtosellers)Total

surplus.29EfficiencyAnallocationofresEvaluatingtheMarketEquilibriumMarketeq’m:

P=$30

Q=15,000Totalsurplus

=CS+PSIsthemarketeq’mefficient?PQSDCSPS.30EvaluatingtheMarketEquilibrWhichBuyersConsumetheGood?PQSDEverybuyer

whoseWTPis

≥$30willbuy.Everybuyer

whoseWTPis

<$30willnot.So,thebuyerswhovaluethegoodmosthighlyaretheoneswhoconsumeit.

.31WhichBuyersConsumetheGood?WhichSellersProducetheGood?PQSDEverysellerwhosecostis≤$30willproducethegood.Everysellerwhosecostis>$30willnot.So,thesellerswiththelowestcostproducethegood..32WhichSellersProducetheGoodDoesEq’mQMaximizeTotalSurplus?PQSDAtQ=20,

costofproducing

themarginalunit

is$35valuetoconsumers

ofthemarginalunit

isonly$20Hence,canincreasetotalsurplus

byreducingQ.ThisistrueatanyQgreaterthan15..33DoesEq’mQMaximizeTotalSuDoesEq’mQMaximizeTotalSurplus?PQSDAtQ=10,

costofproducing

themarginalunit

is$25valuetoconsumers

ofthemarginalunit

is$40Hence,canincreasetotalsurplus

byincreasingQ.ThisistrueatanyQlessthan15..34DoesEq’mQMaximizeTotalSuDoesEq’mQMaximizeTotalSurplus?PQSDThemarket

eq’mquantitymaximizes

totalsurplus:

Atanyotherquantity,

canincrease

totalsurplusbymovingtoward

themarketeq’mquantity..35DoesEq’mQMaximizeTotalSuAdamSmithandtheInvisibleHand“Manhasalmostconstantoccasionforthehelpofhisbrethren,anditisvainforhimtoexpectitfromtheirbenevolenceonly.AdamSmith,

1723-1790PassagesfromTheWealthofNations,1776Hewillbemorelikelytoprevailifhecaninteresttheirself-loveinhisfavor,andshowthemthatitisfortheirownadvantagetodoforhimwhatherequiresofthem…Itisnotfromthebenevolenceofthebutcher,thebrewer,orthebakerthatweexpectourdinner,butfromtheirregardtotheirowninterest…..36AdamSmithandtheInvisibleHAdamSmithandtheInvisibleHand“Everyindividual…neitherintendstopromotethepublicinterest,norknowshowmuchheispromotingit….AdamSmith,

1723-1790PassagesfromTheWealthofNations,1776Heintendsonlyhisowngain,andheisinthis,asinmanyothercases,ledbyaninvisiblehandtopromoteanendwhichwasnopartofhisintention.Norisitalwaystheworseforthesocietythatitwasnopartofit.Bypursuinghisowninteresthefrequentlypromotes

thatofthesocietymoreeffectuallythanwhenhereallyintendstopromoteit.”aninvisiblehand.37AdamSmithandtheInvisibleHTheFreeMarketvs.GovtInterventionThemarketequilibriumisefficient.Nootheroutcomeachieveshighertotalsurplus.Govtcannotraisetotalsurplusbychangingthemarket’sallocationofresources.Laissezfaire(Frenchfor“allowthemtodo”):

thenotionthatgovtshouldnotinterferewiththemarket..38TheFreeMarketvs.GovtInterThefreemarketvs.centralplanningSupposeresourceswereallocatednotbythemarket,butbyacentralplannerwhocaresaboutsociety’swell-being. Toallocateresourcesefficientlyandmaximizetotalsurplus,theplannerwouldneedtoknoweveryseller’scostandeverybuyer’sWTPforeverygoodintheentireeconomy.Thisisimpossible,andwhycentrally-plannedeconomiesareneververyefficient..39Thefreemarketvs.centralplCONCLUSIONThischapterusedwelfareeconomicstodemonstrateoneoftheTenPrinciples:

Marketsareusuallyagoodwayto

organizeeconomicactivity.Importantnote:

Wederivedtheselessonsassuming

perfectlycompetitivemarkets.Inotherconditionswewillstudyinlaterchapters,themarketmayfailtoallocateresourcesefficiently….40CONCLUSIONThischapterusedweCONCLUSIONSuchmarketfailuresoccurwhen:abuyerorsellerhasmarketpower–theabilitytoaffectthemarketprice.transactionshavesideeffects,calledexternalities,thataffectbystanders.(example:pollution)We’llusewelfareeconomicstoseehowpublicpolicymayimproveonthemarketoutcomeinsuchcases.Despitethepossibilityofmarketfailure,theanalysisinthischapterappliesinmanymarkets,andtheinvisiblehandremainsextremelyimportant..41CONCLUSIONSuchmarketfailuresCHAPTERSUMMARYTheheightoftheDcurvereflectsthevalueofthegoodtobuyers—theirwillingnesstopayforit.Consumersurplusisthedifferencebetweenwhatbuyersarewillingtopayforagoodandwhattheyactuallypay.Onthegraph,consumersurplusistheareabetweenPandtheDcurve.42.CHAPTERSUMMARYTheheightoft42CHAPTERSUMMARYTheheightoftheScurveissellers’costofproducingthegood.Sellersarewillingtosellifthepricetheygetisatleastashighastheircost.Producersurplusisthedifferencebetweenwhatsellersreceiveforagoodandtheircostofproducingit.Onthegraph,producersurplusistheareabetweenPandtheScurve.43.CHAPTERSUMMARYTheheightoft43CHAPTERSUMMARYTomeasureofsociety’swell-being,weuse

totalsurplus,thesumofconsumerandproducersurplus.Efficiencymeansthattotalsurplusismaximized,thatthegoodsareproducedbysellerswithlowestcost,andthattheyareconsumedbybuyerswhomostvaluethem.Underperfectcompetition,themarketoutcomeisefficient.Alteringitwouldreducetotalsurplus.44.CHAPTERSUMMARYTomeasureofs44Consumers,Producers,

andtheEfficiencyofMarketsEconomicsPRINCIPLESOFN.GregoryMankiw7Consumers,Producers,

andtheInthischapter,

lookfortheanswerstothesequestions:Whatisconsumersurplus?Howisitrelatedtothedemandcurve?Whatisproducersurplus?Howisitrelatedtothesupplycurve?Domarketsproduceadesirableallocationofresources?Orcouldthemarketoutcomebeimprovedupon?46.Inthischapter,

lookforthe46WelfareEconomicsRecall,theallocationofresourcesrefersto:howmuchofeachgoodisproducedwhichproducersproduceitwhichconsumersconsumeitWelfareeconomicsstudieshowtheallocationofresourcesaffectseconomicwell-being.First,welookatthewell-beingofconsumers..47WelfareEconomicsRecall,theaWillingnesstoPay(WTP)Abuyer’swillingnesstopayforagoodisthemaximumamountthebuyerwillpayforthatgood.WTPWTPAnthony$250Chad175Flea300John125Example:

4buyers’WTP

foraniPod.48WillingnesstoPay(WTP)AbuyeWTPandtheDemandCurveQ:

IfpriceofiPodis$200,whowillbuyaniPod,andwhatisquantitydemanded?A: Anthony&FleawillbuyaniPod,Chad&Johnwillnot. Hence,Qd=2

whenP=$200.nameWTPAnthony$250Chad175Flea300John125.49WTPandtheDemandCurveQ: IfWTPandtheDemandCurveDerivethedemandschedule:4John,Chad,

Anthony,Flea0–1253Chad,Anthony,

Flea126–1752Anthony,Flea176–2501Flea251–3000nobody$301&upQdwhobuysP(price

ofiPod)nameWTPAnthony$250Chad175Flea300John125.50WTPandtheDemandCurveDeriveWTPandtheDemandCurvePQd$301&up0251–3001176–2502126–17530–1254PQ.51WTPandtheDemandCurvePQd$30AbouttheStaircaseShape…ThisDcurvelookslikeastaircase

with4steps–oneperbuyer.PQIftherewereahuge#ofbuyers,asinacompetitivemarket,therewouldbeahuge#

ofverytinysteps,anditwouldlookmorelikeasmoothcurve..52AbouttheStaircaseShape…ThisWTPandtheDemandCurveAtanyQ,

theheightof

theDcurveistheWTPofthemarginalbuyer,thebuyerwhowouldleavethemarketifPwereanyhigher.PQFlea’sWTPAnthony’sWTPChad’sWTPJohn’s

WTP.53WTPandtheDemandCurveAtanyConsumerSurplus(CS)Consumersurplusistheamountabuyeriswillingtopayminustheamountthebuyeractuallypays: CS=WTP–PnameWTPAnthony$250Chad175Flea300John125SupposeP=$260.Flea’sCS=$300–260=$40.TheothersgetnoCSbecausetheydonotbuyaniPodatthisprice.TotalCS=$40..54ConsumerSurplus(CS)ConsumerCSandtheDemandCurvePQFlea’sWTPP=$260Flea’sCS=

$300–260=$40TotalCS=$40.55CSandtheDemandCurvePQFlea’CSandtheDemandCurvePQFlea’sWTPAnthony’sWTPInstead,suppose

P=$220Flea’sCS=

$300–220=$80Anthony’sCS=

$250–220=$30TotalCS=$110.56CSandtheDemandCurvePQFlea’CSandtheDemandCurvePQThelesson:TotalCSequalstheareaunder

thedemandcurveabovetheprice,from0toQ..57CSandtheDemandCurvePQThelPQ$CSwithLotsofBuyers&aSmoothDCurveThedemandforshoesD1000sofpairsofshoesPrice

perpairAtQ=5(thousand),themarginalbuyeriswillingtopay$50forpairofshoes.SupposeP=$30.Thenhisconsumersurplus=$20..58PQ$CSwithLotsofBuyers&aPQCSwithLotsofBuyers&aSmoothDCurveThedemandforshoesDCSistheareab/wPandtheDcurve,from0toQ.Recall:areaof

atriangleequals

?xbasexheightHeight=

$60–30=$30.So,

CS=?x15x$30

=$225.h$.59PQCSwithLotsofBuyers&aSPQHowaHigherPriceReducesCSDIfPrisesto$40,CS=?x10x$20

=$100.TworeasonsforthefallinCS.1. FallinCS

duetobuyersleavingmarket2. FallinCSduetoremainingbuyers

payinghigherP.60PQHowaHigherPriceReducesC61PQdemandcurveA.

Findmarginalbuyer’sWTPat

Q=10.B.

FindCSfor

P=$30.SupposePfallsto$20.

HowmuchwillCSincreasedueto…C.

buyersentering

themarketD.

existingbuyerspayinglowerprice$ACTIVELEARNING1

Consumersurplus.16PQdemandcurveA. Findmargi61CostandtheSupplyCurvenamecostJack$10Janet20Chrissy35Asellerwillproduceandsellthegood/serviceonlyifthe

priceexceedshisorhercost.Hence,costisameasureofwillingnesstosell.Costisthevalueofeverythingasellermustgiveuptoproduceagood(i.e.,opportunitycost).Includescostofallresourcesusedtoproducegood,includingvalueoftheseller’stime.Example:Costsof3sellersinthelawn-cuttingbusiness..62CostandtheSupplyCurvenamecCostandtheSupplyCurve335&up220–34110–190$0–9QsPDerivethesupplyschedulefromthecostdata:namecostJack$10Janet20Chrissy35.63CostandtheSupplyCurve335&CostandtheSupplyCurvePQPQs$0–9010–19120–34235&up3.64CostandtheSupplyCurvePQPQsCostandtheSupplyCurvePQAteachQ,

theheightof

theScurve

isthecostofthemarginalseller,

thesellerwhowouldleave

themarketif

thepricewereanylower.Chrissy’s

costJanet’scostJack’scost.65CostandtheSupplyCurvePQAtProducerSurplusPQProducersurplus(PS):theamountaseller

ispaidforagood

minustheseller’scostPS=P–cost.66ProducerSurplusPQProducersurProducerSurplusandtheSCurvePQPS=P–costSupposeP=$25.Jack’sPS=$15Janet’sPS=$5Chrissy’sPS=$0TotalPS=$20Janet’scostJack’scostTotalPSequalstheareaabovethesupplycurveundertheprice,from0toQ.Chrissy’s

cost.67ProducerSurplusandtheSCurPQPSwithLotsofSellers&aSmoothSCurveThesupplyofshoesS1000sofpairsofshoesPrice

perpairSupposeP=$40.AtQ=15(thousand),themarginalseller’scostis$30,andherproducersurplusis$10..68PQPSwithLotsofSellers&aPQPSwithLotsofSellers&aSmoothSCurveThesupplyofshoesSPSistheareab/w

PandtheScurve,from0toQ.Theheightofthistriangleis

$40–15=$25.So,

PS=?xbxh

=?x25x$25

=$312.50h.69PQPSwithLotsofSellers&aPQHowaLowerPriceReducesPSIfPfallsto$30,PS=?x15x$15

=$112.50TworeasonsforthefallinPS.S1. FallinPS

duetosellersleavingmarket2. FallinPSduetoremainingsellers

gettinglowerP.70PQHowaLowerPriceReducesPSPQsupplycurveA.

Findmarginal

seller’scost

atQ=10.B.

FindtotalPSfor

P=$20.SupposePrisesto$30.

Findtheincrease

inPSdueto…C.

selling5

additionalunitsD.

gettingahigherpriceontheinitial10units71ACTIVELEARNING2

Producersurplus.PQsupplycurveA. Findmargina71CS,PS,andTotalSurplusCS=(valuetobuyers)–(amountpaidbybuyers) = buyers’gainsfromparticipatinginthemarketPS=(amountreceivedbysellers)–(costtosellers) =sellers’gainsfromparticipatinginthemarketTotalsurplus=CS+PS =totalgainsfromtradeinamarket =(valuetobuyers)–(costtosellers).72CS,PS,andTotalSurplusCS=TheMarket’sAllocationofResourcesInamarketeconomy,theallocationofresources

isdecentralized,determinedbytheinteractions

ofmanyself-interestedbuyersandsellers.Isthemarket’sallocationofresourcesdesirable?Orwouldadifferentallocationofresourcesmakesocietybetteroff?Toanswerthis,weusetotalsurplusasameasureofsociety’swell-being,andweconsiderwhetherthemarket’sallocationisefficient. (Policymakersalsocareaboutequality,thougharefocushereisonefficiency.).73TheMarket’sAllocationofResEfficiencyAnallocationofresourcesisefficientifitmaximizestotalsurplus.Efficiencymeans:Thegoodsareconsumedbythebuyerswhovaluethemmosthighly.Thegoodsareproducedbytheproducerswiththelowestcosts.Raisingorloweringthequantityofagood

wouldnotincreasetotalsurplus.=(valuetobuyers)–(costtosellers)Total

surplus.74EfficiencyAnallocationofresEvaluatingtheMarketEquilibriumMarketeq’m:

P=$30

Q=15,000Totalsurplus

=CS+PSIsthemarketeq’mefficient?PQSDCSPS.75EvaluatingtheMarketEquilibrWhichBuyersConsumetheGood?PQSDEverybuyer

whoseWTPis

≥$30willbuy.Everybuyer

whoseWTPis

<$30willnot.So,thebuyerswhovaluethegoodmosthighlyaretheoneswhoconsumeit.

.76WhichBuyersConsumetheGood?WhichSellersProducetheGood?PQSDEverysellerwhosecostis≤$30willproducethegood.Everysellerwhosecostis>$30willnot.So,thesellerswiththelowestcostproducethegood..77WhichSellersProducetheGoodDoesEq’mQMaximizeTotalSurplus?PQSDAtQ=20,

costofproducing

themarginalunit

is$35valuetoconsumers

ofthemarginalunit

isonly$20Hence,canincreasetotalsurplus

byreducingQ.ThisistrueatanyQgreaterthan15..78DoesEq’mQMaximizeTotalSuDoesEq’mQMaximizeTotalSurplus?PQSDAtQ=10,

costofproducing

themarginalunit

is$25valuetoconsumers

ofthemarginalunit

is$40Hence,canincreasetotalsurplus

byincreasingQ.ThisistrueatanyQlessthan15..79DoesEq’mQMaximizeTotalSuDoesEq’mQMaximizeTotalSurplus?PQSDThemarket

eq’mquantitymaximizes

totalsurplus:

Atanyotherquantity,

canincrease

totalsurplusbymovingtoward

themarketeq’mquantity..80DoesEq’mQMaximizeTotalSuAdamSmithandtheInvisibleHand“Manhasalmostconstantoccasionforthehelpofhisbrethren,anditisvainforhimtoexpectitfromtheirbenevolenceonly.AdamSmith,

1723-1790PassagesfromTheWealthofNations,1776Hewillbemorelikelytoprevailifhecaninteresttheirself-loveinhisfavor,andshowthemthatitisfortheirownadvantagetodoforhimwhatherequiresofthem…Itisnotfromthebenevolenceofthebutcher,thebrewer,orthebakerthatweexpectourdinner,butfromtheirregardtotheirowninterest…..81AdamSmithandtheInvisibleHAdamSmithandtheInvisibleHand“Everyindividual…neitherintendstopromotethepublicinterest,norknowshowmuchheispromotingit….AdamSmith,

1723-1790PassagesfromTheWealthofNations,1776Heintendsonlyhisowngain,andheisinthis,asinmanyothercases,ledbyaninvisiblehandtopromoteanendwhichwasnopartofhisintention.Norisitalwaystheworseforthesocietythatitwasnopartofit.Bypursuinghisowninteresthefrequentlypromotes

thatofthesocietymoreeffectuallythanwhenhereallyintendstopromoteit.”aninvisiblehand.82AdamSmithandtheInvisibleHTheFreeMarketvs.GovtInterventionThemarketequilibriumisefficient.No