Efficiency and Fairness of Markets CHAPTER 6

The Invisible Hand and e-Commerce You can see the influence of the invisible hand in the cartoon. The vendor has cold drinks and shade. The reader on the park bench has marginal benefit from cold drinks and marginal benefit from shade.

The Invisible Hand and e-Commerce The transaction that occurs shows that the reader’s marginal benefit from shade exceeds the vendor’s marginal cost of shade. And the reader’s marginal benefit from cold drinks is less than the vendor’s marginal cost of a cold drink.

The Invisible Hand and e-Commerce The vendor obtains a producer surplus and the reader obtains a consumer surplus. Both the reader and the vendor are better off after the transaction than before it. The umbrella has moved to its highest-valued use.

The Invisible Hand and e-Commerce The market economy relentlessly performs the activity illustrated in the cartoon. During the past few years, hundreds of Web sites have been established that are dedicated to facilitating trading in all types of goods, services, and factors of production. These e-commerce innovations are increasing consumer surplus, increasing producer surplus, and achieving yet greater allocative efficiency.