This survey will encompass lectures 20 through 25, leaving two lectures for our final destination. The last two lectures will explore the remarkable result that under despite the interaction between markets and the complexity of coordinating the self-interested activities of many individual decision makers, markets is to efficiently allocate scarce resources. Many different and independently thinking people simultaneously decide how much of each and every available good to consume given their constraints. The demand curve is a convenient way to summarize each consumer's activity. In lecture 3 we talked about how a farmer can optimally divides his time between market and non-market activities by thinking about the marginal costs and benefits of devoting additional units of time to market production.
Firms use the same tool of marginal analysis to determine how much of a good or service to supply.
The simultaneous decision process, when undertaken by all firms in an economy, comprises the supply curve. For example, my decision to drive to work increases the number of cars on the road and contributes to congestion that slows the commutes of other drivers. Incidentally, you should avoid the misconception that coordination problems occur because people are unethical, inconsiderate, or difficult. Game theory shows us that even well intentioned people often encounter obstacles to coordination. When a firm hires a worker, the worker knows more about her job qualifications than her employer.