MHR 522 Lecture Notes - Lecture 10: Invisible Hand, Pareto Efficiency, Perfect Competition

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Theoretical paradigms: a theory is an attempt to explain something- it can be right or wrong. They affect the way you think in a certain way. Left side of the wing: - critical, marxist, radical: social equality. In every market, there are some people who choose to go in as sellers and other who choose to go in as buyers. Individual preference according to the constraint of the good: private transactions, individual free contracting, the equilibrium is pareto efficient (or at least potentially pareto efficient, assumption: both these are included in the market model. Reading (adam smith): everything in this life is based on personal gain or self interest. This is a good thing because it produces the collective interest. Nobody is in charge of guidance because it coordinates the collective interest. Invisible hand- ultimate source of faith, guiding force: limits of the free market.

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