Economics ECON S - 1920 Lecture Notes - Lecture 2: Invisible Hand, Economic Equilibrium, Economic Surplus

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nicolk

15 Dec 2021

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Harvard University

Department

Economics

Course

Economics ECON S - 1920

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Document Summary

Economics chapter 7: perfect competition & invisible hand: perfect competition & efficiency. The invisible hand: pursuit of individual self-interest promotes well-being of society as a whole . Reservation value: price at which trading partner is indifferent between making trade or not doing so (willingness-to-pay/sell-values) Social surplus: sum of consumer surplus and producer surplus, total value from trade in market: social surplus is maximized when buyers & sellers are optimizing (highest-value buyers purchasing & lowest-cost sellers selling) Example equilibrium at price 40 & quantity 4: no outside interaction: generates maximum amount of social surplus, restricting trades to two: leaves out profitable trades, expanding trades higher than equilibrium: forces unprofitable trades, leaves out sean & Jeff trade (social surplus of 100: all profitable trades included (social surplus of 120) 1. 3 pareto efficiency: includes adam & ian . Trade (benefits lower than cost: loss=50-30 -> social surplus of 100)

Related Questions

Efficiency in a market is achieved when

a. social planner intervenes and sets the quantity of output after evaluating buyers willingness to pay and sellers' costs

b. the sum of producer surplus and consumer surplus is maximized

c. all firms are producing the good at the same low cost per unit.

d. no buyer is willing to pay more than the equilibrium price for any unit of the good.

chocolateantelope690

Efficiency in a market is achieved when the sum of producer surplus and consumer surplus is maximized. Thus, the total surplus:

a. can be used to measure society's well-being.

b. is the sum of consumer and producer surplus.

c. amounts to value to buyers minus cost to sellers.

d. All of the above are correct.

sapphiretiger77

True or False:

1. Consumer surplus is the buyer's willingness-to-pay minus the seller's opportunity cost of production.

2. If your willingness-to-pay for a hamburger is $3 and you paid $2, then your consumer surplus is $5.00

3. The opportunity cost of production for a seller includes the implicit cost of the seller's time.

4. The height of the supply curve at a selected quantity is the seller's opportunity cost of producing that marginal unit.

5. Total surplus (total well-being) is the seller's cost of production minus the buyer's willingness-to-pay.

6. The competitive market equilibrium outcome is efficient because it allocates the produced output to the buyers who place the highest value on the good

7. Producer surplus is the area above the supply curve and below the price.

8. The competitive market equilibrium outcome maximizes total surplus (total well-being)

9. Producing and consuming more of a good will always increase the total surplus(total well-being).

redelephant805

Economics ECON S - 1920 Lecture Notes - Lecture 2: Invisible Hand, Economic Equilibrium, Economic Surplus

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