Market Dynamics: Social Welfare and Economic Models

This lecture discusses the relationship between market dynamics and social welfare, focusing on the concepts of willingness to pay (WTP) and willingness to accept (WTA). The instructor explains how these measures reflect the welfare derived by buyers and the costs incurred by sellers. The lecture emphasizes that social welfare is maximized when the marginal WTP equals the marginal WTA, leading to an equilibrium in a perfectly competitive market. However, the instructor also highlights the unrealistic assumptions underlying this model, such as the absence of external costs and the notion of perfect competition. The discussion extends to the implications of market imperfections, including externalities and anti-competitive behaviors, and the role of public authorities in correcting these market failures. The lecture concludes by addressing practical economic questions, such as price variations, unemployment, and investment patterns, demonstrating how the market model can provide insights into everyday economic phenomena.