GSF 1025 Lecture Notes - Lecture 7: Invisible Hand, Perfect Competition, Economic Surplus
Document Summary
The sum of consumer and producer surplus (in the example = 120$) When no one can be made better off without making someone else worse off. Example: when price was set at , consumers were made better off, but producers were made worse off. The invisible hand directs consumers and producers to maximize their surplus and leads to the highest level of social welfare. Extending the reach of the invisible hand: from the individual to the firm. You"re the new ceo of a company that operates two manufacturing plants. The old plant has higher mc at every level of production than the new plant. In the past, each plant has been run independently, and each plant manager is charged with maximizing profit at his/her plant. Earns more profit: has lower costs, has newer technology. The invisible hand directs managers to pursue their own self-interest . And results in the most efficient (least-cost) production allocation.
