Chapter02 - Chapter 2 When is a Market Socially Optimal?...

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Chapter 2 When is a Market Socially Optimal? Contents: Basic Definitions Potential Reasons for Government Intervention in the Market Government Policies to Disseminate Information Externalities Public Goods Transfer Policies Noncompetitive Behavior Basic Definitions Competitive Economy: An economy that consists of many small economic units, each with no market power. Pareto Optimal: A resource allocation such that you cannot improve any individual’s welfare without hurting the welfare of at least one other individual. Such resource allocations are said to be efficient. Kaldor-Hicks criterion: potential Pareto improvements. Basis for Cost-Benefit analysis. The Main Theorem of Welfare Economics: A competitive economy will result in a Pareto optimal resource allocation when: Full information exists No externalities exist There are no increasing returns to scale in technology Potential Reasons for Government Intervention in the Market Facilitate information flow
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This note was uploaded on 11/16/2008 for the course ECON 101 taught by Professor Wood during the Spring '07 term at University of California, Berkeley.

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Chapter02 - Chapter 2 When is a Market Socially Optimal?...

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