Comment of the Day: Market failure-free competitive markets in equilibrium do not maximize production. They maximize money-metric surplus:

Econ 1: Spring 2016: U.C. Berkeley: Practice Final Exam: I wrote: Suppose that today we have five potential students and five potential teachers for private yoga lessons.


The willingnesses-to-pay for and opportunity costs of teaching one-on-one yoga lessons are as given in the table above.

Suppose the price at which yoga lessons are bought and sold must be a multiple of $10. Suppose willingnesses-to-pay and opportunity costs are a good guide to societal values and societal opportunity costs…

In an efficient economy, how many yoga lessons will be taught today?... Will Josef teach yoga in an efficient economy? No.... In an efficient economy, approximately what will the total surplus in dollars?.... If we implement the efficient allocation via a competitive market in equilibrium, what, approximately, will be the consumer surplus in dollars?

And I said that the answers I am looking for are: 3. No. $270. $165.

Now comes Joel N. to say:

Four is possible:

Adolf $205 - Josef $95
Augusto $115 - Charles $75
Francisco $85 - Jieshi $45
Benito $65 - Winston $15

Why is the arrangement Joel N. proposes an unstable arrangement?

Who will take action to destabilize it?

What action will they take?

How will their action change the amount and distribution of surplus?