Bài giảng Macroeconomics - Chapter 6: Efficiency, Exchange, and the Invisible Hand in Action

Chapter 6: Efficiency, Exchange, and the Invisible Hand in ActionDefine and explain the differences between accounting profit, economic profit, and normal profitInterpret why the quest for economic profit drives firms to enter some industries and leave othersExplain why economic profit tends toward zero in the long runExplain why no opportunities for gain remain open for individuals when a market is in equilibriumDetermine if the market equilibrium is socially efficientCalculate total economic surplus and explain how it is affected by policies that prevent the market from reaching equilibriumAccounting ProfitMost common profit ideaAccounting profit = total revenue – explicit costsExplicit costs are payments firms make to purchaseResources (labor, land, etc.) and Products from other firmsEasy to compute and compare across firmsEconomic ProfitEconomic profit is the difference between a firm's total revenue and the sum of its explicit and implicit costsAlso called excess profitsImplicit costs are the opportunity costs of the resources supplied by the firm's ownersNormal profit is the difference between accounting profit and economic profitNormal profits keep the resources in their current useThree Kinds of ProfitTotalRevenueExplicitCostsAccountingProfitNormal ProfitEconomicProfitExplicitCostsTotal Revenue = Explicit Costs + Accounting ProfitEconomicProfit = Accounting Profit – Normal ProfitTwo Functions of PriceRationing function of price distributes scarce goods to the consumers who value them most highlyAllocative function of price directs resources away from overcrowded markets to markets that are underservedInvisible Hand Theory states that the actions of independent, self-interested buyers and sellers will often result in the most efficient allocation of resourcesArticulated by Adam Smith in eighteenth centuryResponses to Profits and LosesFirms enter the market in response to economic profitFirms exit the market in response to economic lossSS’D Quantity (units/week) Price ($/unit)P’PQQ’PP’QQ’ Quantity (units/week) Price ($/unit)SS’DFree Entry and ExitBarrier to entry: any force that prevents firms from entering a new industryLegal constraintsPractical factorsFree entry and exit is required for the Invisible Hand to workEconomic RentEconomic profits tend toward zero, yet people get richEconomic rent is the portion of a payment to a factor of production that exceeds the owner's reservation pricePeople who love their workNon-reproducible inputThe case of the talented chefUnique talent for cooking In equilibrium, pay the chef the increase in revenue from his talentMarket Equilibrium and Big PayoffsEquilibrium leaves no opportunities for individuals to gainNon-equilibrium opportunities benefit individualsExploiting opportunities moves the market toward equilibriumThree ways to earn a big payoff: Work exceptionally hard Have some unique skill or talent Be luckyInvisible Hand and Socially Optimal OutcomeMarkets work best whenBuyers' marginal benefits = sellers' marginal costsANDSociety's marginal benefits = society's marginal costsIndividual spending to improve a stock price forecast may benefit the individualSome other individual losesReturn to society of the investment is less than the benefitMarket Equilibrium and EfficiencyEconomic efficiency exists when no change could be made to benefit one party without harming the otherSometimes called Pareto efficiencyDifferent from engineering efficiencyEquilibrium price and quantity are efficientPrices above or below equilibrium are notEfficiency ConditionsMarket EfficiencyPerfectly Competitive Markets No Costs or Benefits ShiftedTrade-OffsEfficiencyMaximum Total SurplusEquityFairnessBasic NeedsInvisible Hand in ActionResource AllocationEconomic RentsInvisible HandProfitsExamplesEconomic EfficiencyMarket EquilibriumPrice CeilingsSubsidies