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Unformatted text preview: 1 1 Demand, Supply and the Meaning of (Economic) Life What did Adam Smith Know? It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Self-interest, competition, markets, S&D, Micro Friedmans pencil 2 In the News 3 Adam Smith's Invisible Hand? Self-interest and competition in market system leads to optimal outcome Why not abuse by business? Why do consumers get what they want? Why produce efficiently? Why work hard? Efficiency versus Equity Market economies - Capitalist Non-market economies Som, Communism Central planning information and incentive problems Role of Govt? Laisser faire But : market failure, externalities, public goods 2 4 What Determines the Price of Anything? The Value? Anything?...
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- Summer '08