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ECON 431: Economics of the Public Sector

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Class notes

8/30/2006

Invisible Hand Theorem

If all markets are perfectly competitive and there are no external effects and information is costless, the actions of maximizing buyers and sellers will result in an effective allocation of resources.

Simplifying assumptions:

  1. Two people: adam & eve
  2. Two outputs - meat and bread
  3. Two inputs - labor and capital


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