perfect competition and the invisible hand

Question 1

reservation value

Answer 1

willingness to pay and willingness to accept

Question 2

social surplus (2)

Answer 2

sum of consumers’ and producers’ surplus
total satisfaction

Question 3

fix price or quantity/ not free market

Answer 3

one party may experience bigger satisfaction than the other
less total satisfaction

Question 4

Pareto efficiency

Answer 4

when no one can be better off without making someone else worse off

Question 5

invisible hand

Answer 5

directs consumers and producers to maximize their surplus and maximize well-being

Question 6

invisible hand: firm

Answer 6

directs managers to pursue their own self-interest and results in the most efficient product allocation

Question 7

invisible hand: allocation of resources across the industries

Answer 7

directs firms to seek out profits and results in resources being allocated to their highest value of use

Question 8

price controls act to …

Answer 8

resist efficiency
interfere with the ability of price to allocate resources

Question 9

deadweight loss

Answer 9

reduction in social surplus resulting from a market intervention