經濟學原理（上）

國立臺灣大學經濟學系
林明仁 教授
 Chapter 7Perfect Competition
and the Invisible Hand

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7 Perfect Competition and the Invisible Hand

Key Ideas
1. The invisible hand efficiently allocates goods and
services to buyers and sellers.
2. The invisible hand leads to efficient production
within an industry.
3. The invisible hand efficiently allocates resources
across industries.

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7 Perfect Competition and the Invisible Hand

Key Ideas

4. Prices direct the invisible hand.

5. There are trade-offs between making the
economic pie as big as possible and
dividing the pieces equally.

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7 Perfect Competition and the Invisible Hand

Evidence-Based Economics Example:

Can markets composed of only
self-interested people maximize the overall
well-being of society?

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7.1 Perfect Competition and Efficiency

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7.1 Perfect Competition and Efficiency

Exhibit 7.2 Demand and Supply Curves in the iPod Market

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7.1 Perfect Competition and Efficiency
Social Surplus

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7.1 Perfect Competition and Efficiency
Social Surplus

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7.1 Perfect Competition and Efficiency
Social Surplus

Social surplus
The sum of consumer and producer surplus
= $60+$60=$120

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7.1 Perfect Competition and Efficiency
Social Surplus

Exhibit 7.3 Maximizing Social Surplus

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 Figure 1 How the Price Affects
Consumer Surplus
(a) Consumer Surplus at Price P1
Pri A
ce

消費者剩
餘
P
1
B C

Demand

Q Quanti
1 ty
Figure 2 How the Price Affects
Producer Surplus
(a) Producer Surplus at Price P1
Pric
e

Suppl
y

B
P
1 C
生產者剩餘

Q Quantit
1 y
 Figure 7 Consumer and Producer Surplus in the
Market Equilibrium
Pric
e
Suppl
y

消費者剩
Equilibriu 餘
m price
生產者剩
餘

Demand

0 Equilibrium quantity Quantit

y
Figure 8 The Efficiency of the
Equilibrium Quantity
Pri
ce Supp
ly

Val C
uet ost
buye
o selle
to
rs rs

C Val
ost uet
selle buye Dema
to o
nd
rs rs
0 Equilibriu Quanti
mquantit ty
y
Value to buyers is greater Value to buyers is
than cost to than cost to
less
sellers. sellers.
 MARKET EFFICIENCY
Consumer surplus and producer surplus may be used
to address the following question:
Is the allocation of resources determined by free
markets in any way desirable?
CS=Value to buyers(WTP)-Price,
PS=Price-Cost to sellers(WTS)
TS=CS+PS=Willingness to Pay-Willingness to Sell
Efficiency is the property of a resource allocation of
maximizing the total surplus received by all members
of society.
 Evaluating the Market Equilibrium
Three Insights Concerning Market Outcomes

Free markets allocate the supply of goods to the buyers who

value them most highly, as measured by their willingness to
pay.
Free markets allocate the demand for goods to the sellers who
can produce them at least cost.
Free markets produce the quantity of goods that maximizes the
sum of consumer and producer surplus.
Evaluating the Market Equilibrium

However, If a market system is not perfectly

competitive, market power may result in:

Market power is the ability to influence prices.

Market power can cause markets to be inefficient
because it keeps price and quantity from the
equilibrium of supply and demand.
Evaluating the Market Equilibrium
Because the equilibrium outcome is an efficient
allocation of resources, the social planner can leave
the market outcome as he/she finds it.
This policy of leaving well enough alone goes by the
French expression laissez faire.
Ex of Mankiw: Ticket Scalping p148: 4th edition: a
guy is making $40,000 a year, creating jobs , 6 th Econ
professor Case. 2012 倫敦奧運 . 空位超多 代買
Mr.Donut⋯⋯ 黑道皆因管制起，窮人跑腿有工作。
7.1 Perfect Competition and Efficiency
Pareto Efficiency

Pareto efficiency ( 柏雷托最適境界 )

When no one can be made better off without
making someone else worse off
Example: When price was set at $20, consumers
were made better off, but producers were made
worse off.

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7.1 Perfect Competition and Efficiency
Pareto Efficiency

The invisible hand directs consumers and

producers to maximize their surplus……

And leads to the highest level of

social welfare.

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7.1 Perfect Competition and Efficiency
Pareto Efficiency

Welfare economics:

Welfare economics is the study of how the allocation of

resources affects economic well-being. Buyers and sellers
receive benefits from taking part in the market.
1st Welfare theorem:
CE→PO( 完全競爭一定導致柏雷托 )
2nd Welfare theorem:
PO→CE( 每一個柏雷托一定可以找到一組價格支撐 )

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7.4 Prices Guide the Invisible Hand

Prices are
the key to the
invisible hand.

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7.4 Prices Guide the Invisible Hand

What is the economic function of

parking meters?

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7.4 Prices Guide the Invisible Hand

Price controls act to restrict efficiency.

Efficiency

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7.4 Prices Guide the Invisible Hand
Deadweight Loss

Exhibit 7.15 Deadweight Loss from Price Controls

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7.4 Prices Guide the Invisible Hand
Deadweight Loss

Deadweight Loss
The reduction in social surplus resulting from a
market intervention

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7.4 Prices Guide the Invisible Hand
The Command Economy

How does this all come together?

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7.4 Prices Guide the Invisible Hand
The Command Economy

Two problems:
1. Coordination problem = bringing together self-
interested economic agents to form markets
2. Incentive problem = how to motivate agents to
participate in markets

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7.4 Prices Guide the Invisible Hand
The Command Economy

Two possible solutions:

1. Market economy = prices direct flow of resources,
provide incentives for participants
2. Command economy = central agency directs
resources, provides incentives

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7.4 Prices Guide the Invisible Hand
The Central Planner

K-Mart’s move to a
command economy

Originally intended as a way for individual store managers to get rid of

merchandise that was piling up in their local stores, the corporate office took
over the concept, directing that all local stores discount the same items for the
same amount at the same time. By not letting local store managers respond to
their local conditions, the command approach from corporate headquarters
resulted in lower profits.

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7.4 Prices Guide the Invisible Hand
The Central Planner

https://www.youtube.com/watch?v=mr
2fexY-utY&index=1&list=PLFV2PTn7E
9mE02aPH3LILX8GJHa7F0XTN
The use of knowledge in Society AER
1945

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7.5 Equity and Efficiency

Equity
Addresses the issue of a “fair” distribution
of resources across society

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7.5 Equity and Efficiency

What should the government do about economic

inequality?
Economic analysis alone cannot give us the
answer.
The question is a normative one facing
policymakers.

Three Political Philosophies

Utilitarianism
Libertarianism
Liberalism
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 Utilitarianism
Utilitarianism is the political philosophy according to
which the government should choose policies to
maximize the total utility of everyone in society.
The founders of utilitarianism are the English
philosophers Jeremy Bentham and John Stuart Mill.
The utilitarian case for redistributing income is based on
the assumption of diminishing marginal utility.
An extra dollar of income to a poor person provides that
person with more utility, or well-being, than does an extra
dollar to a rich person.
 A example of Utilitarian
Say Peter has 8,000, Paul has 2,000,take 1000 dollars
from Peter to Paul, if marginal utility of money is
diminishing, and both have the same utility function,
then the disutility of Paul would be less then the
increase of Paul’s utility gain!
But should we keep on going till both have the same
income?
No! because people respond to incentives.
Michael Sandel - Justice: What’s the
Right Thing to Do?
Ch 2: 最多數人的最大幸福 / 功利主義
1884 年四名水手船難，撐到第 20 天：垂死的年輕雜役
被殺了。四天後，三人被救 ( 當時正在吃早餐 ) ！
支持三人一方 : 雜役本來就快死了！ 殺一人救三人 !
反方 :(1) 即使把拯救人數 生還者 ( 和死者 ) 家人快樂
( 痛苦 ) 都算進去， 加加減減， 殺人整體利益真的高於代
價嗎 ? 這樣有沒有可能會帶來不良後果 ?(2) 即便真的利
大於弊，道德難道不該有在成本效益分析之上的更大考
量?
兩種相反正義論 (1) 行為對錯完全取決於後果 (2) 過程也
很重要，有些人權是神聖不可剝奪 ( 如何界定哪些權力是
神聖的 ?)
 Jeremy Benthem
道德的最高原則就是幸福的最大化！
= 快樂減痛苦 (utility 功利、 效用 ) 的最大化
“ 如果有人打算反對功利原則，一定會不自覺的從功利原則
裏去找理由”
所有的道德爭論，在某種層面爭的都是增樂減苦的功利原
則該如何應用。
Social welfare function( 社會福利函數 ) 。
反對功利主義理由 (1) 殺一人救千萬人，殺之乎 ? (2) 可
以把不同價值轉換成單一衡量單位嗎 ?
We economist think we might have the answer: ex value of
life, measure from one’s own choice
39 Chapter 20: Income
Inequality and Poverty
 The “utility” Jeremy gave us
UCL board meeting

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 John Stuart Mill
“On Liberty( 自由論 )”:That the only purpose for which power
can be rightfully exercised over any member of a civilized
community, against his will, is to prevent harm to others” 只要
不礙到別人，人人有為所欲為的自由
Ex: 多數人討厭異教徒，把他們處死符合功利原則 ?
Mill: yes in the short run, but in the long run, we should not do
this because(1) they might be right! (2)they can provide
competition to the mainstream thought
In the long run, it is good for the society- utilitarian.

40 Chapter 20: Income

Inequality and Poverty
 Liberalism
Liberalism is the political philosophy according to
which the government should choose policies deemed
to be just, as evaluated by an impartial observer
behind a “veil of ignorance( 無知之幕 )”
This view was originally developed by the
philosopher John Rawls.
Rawls 認為：既然大家在平等的初始狀況做選擇，沒
有人具有談判優勢，那麼最後的均衡就會符合正義。

41 Chapter 20: Income

Inequality and Poverty
 Liberalism
Public policy should be based on the maximin
criterion, which seeks to maximize the utility or well-
being of the worst-off person in society.
That is, rather than maximizing the sum of
everyone’s utility, one should maximize the minimum
utility.
This idea would allow for the consideration of the
redistribution of income as a form of social
insurance.

42 Chapter 20: Income

Inequality and Poverty
 Liberalism
Rawls: inequalities in the distribution of goods is
justifiable only if those inequalities benefit the worst-
off members of society:The difference principle 差異
原則
( 根據差異原則，唯有能夠為社會最差階級成員帶來
利益的社會與經濟的不平等，才可被允許。 )

42 Chapter 20: Income

Inequality and Poverty
 Libertarianism

Libertarianism is the political philosophy according to

which the government should punish crimes and
enforce voluntary agreements, but should not
redistribute income.
Libertarians argue that equality of opportunity is more
important than equality of income.
自由主義 vs. 自由至上主義 ??
左派自由主義 vs. 右派自由主義

43 Chapter 20: Income

Inequality and Poverty
 Libertarianism
( 自由至上主義 )
Minimal government: enforce contract, prevent property
crime, keep order.
They do not like: (1)paternalism: 家長作風。 ex: 不繫安全
帶 (2) put moral codes into law (3) redistribution.
Hayek(1960):Constitution of Liberty, Friedman(1962):
Capitalism and Freedom
Robert Nozick: Anarchy, State, and Utopia (1974):
只要是透過自願貿易、同時財產根基於正當的基
礎，那麼這種分配便是正義的。
44 Chapter 20: Income
Inequality and Poverty
7.5 Equity and Efficiency

Evidence-Based Economics Example:

Can markets composed of only
self-interested people maximize the overall
well-being of society?

© 2015 Pearson Education, Inc.