PHL295H1 Lecture Notes - Lecture 3: Optimization Problem, Invisible Hand, Institute For Operations Research And The Management Sciences
Document Summary
Something you took for granted is actually mysterious: the invisible hand and the market: this analysis makes the existence of corporations mysterious. In the explanation of the market with the invisible hand, you can completely ignore bringing up the firm/corporation. Fundamental question: how should this system be organized: the market. When the trading stops, an optimum is achieved: no more mutually beneficial trades available: this means the optimum: ideal vegetables to commune members. In the optimum/ideal: you can"t make anyone happier without making someone else unhappy. Trade pushes allocation of resources towards an optimum. Bilateral exchanges: might be more beneficial to adopt trading by offering a price and negotiating to a market, certain prices will emerge. Suggestion: plant less radishes (the trading price is low), look at prices of vegetables and plant more of what has high price and less of what has low price (corn)
