Transcript Modern Principles Microeconomics and Macroeconomics

Modern Principles
Microeconomics and Macroeconomics
See the Invisible Hand
Understand Your World
Tyler Cowen and Alex Tabarrok
The Romance
 Roses in February in Chicago.
Quite incredible. Where do the
Roses come from? Not from
nearby greenhouses!
Bloemenveiling photo by Wilfried Overwater.
Markets are Cooperative
 A rose is a truly international product.
 The market for roses links romantic Americans with
South American flower growers, Dutch clocks, Finnish
cell phones, Colombian coffee (to keep the pilots
awake) and much more.
 Hundreds of thousands of people from Ecuador to
Chicago cooperated to bring the rose to our
handsome young man and they did so voluntarily, on
the basis of self interest, and without central direction
- this is the invisible hand in action.
The True Importance
of the
P=MC Condition of Profit Maximization
How to Minimize the Total Costs of Corn
Production Across Two Farms
Farm Two
Farm One
MC1
$
Increase
in Costs
Savings
C = A-B
$
Decrease
in Costs
MC2
$200th unit
C
A
B
0
25
Quantity
(Bushels of Corn)
Cost of Producing
200th Unit
175 200
Quantity
(Bushels of Corn)
To Minimize Total Costs Set MC1=MC2
Farm Two
Farm One
MC1
$
$
MC2
0
40
Quantity
(Bushels of Corn)
160
Quantity
(Bushels of Corn)
Pat Sets P =MC1 , Alex sets P =MC2
A Much More Difficult Problem
as a result MC1=MC2
Alex’s Farm
Pat’s Farm
MC1
$
$
MC2
Price of
Corn
$2.50
0
40
Quantity
(Bushels of Corn)
160
Quantity
(Bushels of Corn)
Pat Sets P =MC1 , Alex sets P =MC2
as a result MC1=MC2
Alex’s Farm
Pat’s Farm
MC1
$
$
MC2
Price of
Corn
0
40
Quantity
(Bushels of Corn)
160
Quantity
(Bushels of Corn)
Pat Sets P =MC1 , Alex sets P =MC2
as a result MC1=MC2
Alex’s Farm
Pat’s Farm
MC1
$
$
MC2
Price of
Corn
0
40
Quantity
(Bushels of Corn)
160
Quantity
(Bushels of Corn)
Pat Sets P =MC1 , Alex sets P =MC2
as a result MC1=MC2
Alex’s Farm
Pat’s Farm
MC1
$
$
MC2
Price of
Corn
0
40
Quantity
(Bushels of Corn)
160
Quantity
(Bushels of Corn)
The True Importance of the P=MC Condition
is P=MC1=MC2 …=MCN
Alex’s Farm
Pat’s Farm
MC1
$
$
MC2
Price of
Corn
$2.50
0
40
Quantity
(Bushels of Corn)
160
Quantity
(Bushels of Corn)
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