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ECON 101 2Midtermreview

Utilitarianism is the principle that states that we

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Unformatted text preview: Invisible Hand Adam Smith’s “invisible hand” idea in the Wealth of Nations implied that competitive markets send resources to their highest valued use in society. Consumers and producers pursue their own self- interest and interact in markets. Market transactions generate an efficient—highest valued—use of resources. Underproduction and Overproduction Inefficiency can occur because too little of an item is produced—underproduction—or too much of an item is produced—overproduction. If production is restricted to 5,000 pizzas a day, there is underproduction and the quantity is inefficient. A deadweight loss equals the decrease in total surplus—the gray triangle. This loss is a social loss. If production is expanded to 15,000 pizzas a day, a deadweight loss arises from overproduction. This loss is a social loss. Obstacle...
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