Lecture 9

Lecture 9 - 1 Econ 102 Fall 2008 Lecture 9 Equilibrium and...

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Unformatted text preview: 1 Econ 102 Fall 2008 Lecture 9 Equilibrium and Welfare 2 The Invisible Hand ...every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention . Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. Adam Smith – The Wealth of Nations 3 Topic • Was Smith right? • How do economists formalize his ideas? • What are the two welfare theorems of general equilibrium theory? • How is that related to classical arguments against government intervention in markets? 4 Equilibrium • Walras – General equilibrium theory Walras was a French born economist who taught at the University of Lausanne in Switzerland....
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This note was uploaded on 09/27/2009 for the course ECON 102 taught by Professor Serra during the Fall '08 term at UCLA.

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Lecture 9 - 1 Econ 102 Fall 2008 Lecture 9 Equilibrium and...

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