The Invisible Hand(out): How markets maximize social welfare

Consider the following diagrams: General case:	Ostrich market example (values = $ million)

	Area  (left-hand diagram)	Value ($M) (right-hand diagram)
Equilibrium:
Total surplus:	______	______
Underproduction (QL)
Total surplus:	______	______
Welfare loss:	______	______
Overproduction (QH)
Total surplus:	______	______
Welfare loss:	______	______

    Notice the result which occurs with free markets: buyers and sellers, each making their own benefit-cost decisions, automatically end up at the price and output which maximize society's total surplus (which shows up as the distance between the demand and supply curves out to the quantity marketed).
    It is this result which underlies the conclusion of Adam Smith in 1776: "As every individual endeavors to employ his [effort] so that its produce may be of the greatest value, every individual necessarily renders the annual [surplus] of the society as great as he can. He neither intends to promote the public interest, nor knows how much he is promoting it, [but] he is in this led by an invisible hand to promote an end which was no part of his intention."