01:220:102 Chapter Notes - Chapter 7: Economic Surplus, Pareto Efficiency
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14 May 2020
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Chapter 7: perfect competition and the invisible hand. The invisible hand efficiently allocates goods and services to buyers and sellers. The invisible hand leads to efficient production within an industry. The invisible hand allocates resources efficiently across industries. There are trade-offs between making the economic pie as big as possible and dividing the pieces equally. Reservation value: the price at which a trading partner is indifferent between making the trade and not doing so. The seven buyers make up the market demand and the seven sellers make up the market supply. Equilibrium price is where the market demand and market supply curves intersect () Social surplus: sum of consumer surplus and producer surplus. Consumer surplus: the difference between the buyers" reservation values and what the buyers actually pay. Producer surplus: difference between the price and sellers" reservation values (marginal cost) Social surplus: total value from trade in the market.
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