Class Lecture #36 - 11/28

Properties of Market Equilibrium

• Imagine a stylized market with 5 buyers and 5 sellers:
• point on demand curve = marginal value
• point on supply curve = marginal opportunity cost
• The best suppliers are the ones who can for the lowest cost (s1, s2, s3)
• if s4 or s5 produces --> greater cost of next best opportunity ($25/30 that could go into making something else) ..... society loses >$10 of production
• The above situation occurs if central planning determined who produced guitars..... Decentralize decision-making!