ECON1-0406 - Adam Smith Wealth of Nations 1776 Discusses...

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Adam Smith Wealth of Nations 1776 - Discusses what the world was like in those days - Individuals promote only their own interests, but in doing so they promote the public interest - Greed is good - What is this invisible hand? (some mechanism that causes the selfishness to bring about something good) - Market competition - When people pursue their selfish good causes competition, and will discipline people What we’ll do today - Define a “good” outcome from trade - Show that competitive equilibrium achieves that outcome Outcome - Trades produce outcomes - Some buyers get apples, some don’t - Some sellers sell apples, some don’t - Buyers and sellers make profits Profits - profits measure benefit of exchange - More profit means higher total benefit - Profits are a good thing Supplier’s Profit - Supplier’s reservation price is lowest at which willing to sell - In experiment, supplier’s reservation price = seller cost Demander’s profit - Demander’s reservation price is highest at which willing to buy -
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