Microeconomics · free preview
The Invisible Hand
Prices condense dispersed information into a single number, entry and exit route resources toward their highest-valued uses, and the competitive equilibrium maximizes the measured surplus, the benchmark every later market failure is judged against.
1. Knowledge no one has
Knowledge no one has
2. The allocation the price chooses
The allocation the price chooses
3. Entry as social engineering
Entry as social engineering
4. What the benchmark is not
What the benchmark is not
5. Prices as information
A drought in a distant growing region raises grain costs worldwide. How does the price system communicate this to households that know nothing about the drought?
6. Why P equals MC is the efficiency condition
Why does producing until price equals marginal cost maximize the value the market creates?
7. The surplus from the last trade
A buyer values an extra jar of honey at 22 dollars and the marginal cost of producing it is 19 dollars. Compute the surplus this single extra trade would create in dollars and write the number.
8. The drought telegram
A distant drought raises grain costs worldwide. How does the price system coordinate consumers who never read the harvest news?
9. The marginal value test
A buyer values an extra jar at 22 dollars and the marginal cost of producing it is 19 dollars. What does expanding output by that jar do?
10. Surplus of the marginal jar
A buyer values an extra jar at 15 dollars and its marginal cost is 11 dollars. Compute the value created by producing and selling that jar, and write the number.
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