The Efficiency of the Free Markets
Economy experts use supply and demand curves to demonstrate that the free markets reach optimum product levels for society. However, the conclusion that is derived from this result is that producing and consuming a unit of a product can only be beneficial for society if the benefits that the people derive from consuming it exceed the costs of producing it.
In fact, this is the simple reason why the supply and demand curves are so useful in the analysis of social optimum. The demand curves quantify the benefits the people obtain from consumption because they show what people would be willing to spend to consume all and each one of the product units.
It is still very difficult to identify the optimum product level for society in any supply and demand graphic. But it is exactly the amount produced where the curves of supply and demand cross each other.
Free Markets Produce the Optimum Product Level for Society
The great vision that Adam Smith had was to realize that free markets produce on their own, without any one having to direct them, exactly the optimum product level for society.
The proof of this is almost trivial. All that has to be done is to look at the way graphs actually are and see that the amount of equilibrium in the market, which happens when the price of the market adjusts itself freely so that the amount that is supplied by vendors is equal to the amount demanded by buyers.
When this sort of thing occurs it simplifies things a lot because it eliminates the need to have a government official, or any other type of central planner, constantly watching to see if they are getting exactly the right product amount. Free markets give us precisely the right amount of product without any one having to perform any type of supervision.
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