2008_01_31_Notes - Outline for Today 1. Circumstances for a...

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Outline for Today 1. Circumstances for a system of free markets to sustain an efficient allocation of resources 2. Social Surplus
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Circumstances for a system of free markets to sustain an efficient allocation of resources 1) Markets exist for all goods and services produced and consumed 2) All markets are perfectly competitive 3) All transactors have perfect information 4) Private property rights are fully assigned in all resources and commodities 5) No externalities exist. 6) All goods and services are private goods. That is, there are no public goods. 7) All utility and production functions are well behaved. i) Utility functions bowed toward origin ii)No increasing returns to scale in production
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Consumer Surplus and Producer Surplus Consumer Surplus : the difference between what consumers would be willing to pay for a bundle of goods and what they actually do pay. = the area under the demand curve but above the price, up to the amount purchased = “CS.” Producer Surplus : the difference between the revenue
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This note was uploaded on 02/19/2009 for the course AEM 4510 taught by Professor Shawhan,d. during the Spring '08 term at Cornell University (Engineering School).

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2008_01_31_Notes - Outline for Today 1. Circumstances for a...

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