ECON 1 Lecture Notes - Lecture 5: Scottish Enlightenment, Competitive Equilibrium

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8 Oct 2018
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Show that competitive equilibrium achieves that outcome. (cid:396)every individual neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own gain, and he is in this led by an invisible hand to promote an end which was no part of his intention. (cid:397) If you have a mkt institution set up properly, cause their behavior to promote social good. Individuals promote only their own interests, but in doing so they promote the public interest. If efficient, can"t rearrange trades to make someone better off without making someone else worse off (maximized profit) Surplus given to the sellers, has scarce units to sell. All possible gains from trade are maximized. Profit from any exchange = buyer value seller cost. Total profit determined only by who trades and who doesn"t. For most profit, want buyers with highest buyer value and sellers with lowest.

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