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• EQ (equilibrium)
• Stylized economy with an equal number of sellers and buyers(not necessarily distinct)
• "No money on the table" which = efficient market with equal amount of buyers and sellers
• Unless you pick the right consumer, you leave valuable side deals and money on the table
• X Graph: Sellers SW to NE, Buyers NW to SE. Equilibrium price Centered
• Side Deals
• Can create surpluses
• Example: person 4 values guitar $15 while person 2 values guitar $25; person 4sells guitar to person 2 which results in $10 surplus (25-15)
• Final Price to make a good
• Salary to the worker
• Cost of making the product using the necessary inputs
• Opportunity cost of making a profit off another good
• How can you determine the Central Price?
• Consistent problem with equilibrium
• Set it too high: side deals left on the table and low quantity sold/low profit
• Set it too low: side deals left on the table and low prices/low profit
• Ration by price and the buyers who value the good the most will get it
• Sellers only need to know the price of the good relative to the amount they'll sell
• Buyers only need to know the price of the good relative to the value they place on the good
• Decentralizing decision making as best as you can is the best way to survive in this complex society
• partial solution is to experiment with different policies not infringed by government
• Rent Control and Price Ceiling
• price ceiling: landlords can't raise the price and renters can't bid higher prices