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Microeconomics Chapter 7

Microeconomics Chapter 7 - • If price is not equal to...

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Microeconomics: Chapter 7 12/11/2007 14:19:00 Review for Midterm 3 Economic Surplus = Consumer Surplus + Producer Surplus Efficiency: when total economic surplus is highest A market equilibrium is only efficient when all relevant costs, including those  imposed on others, are accounted for.  Efficient does not mean the same thing as good Still efficiency should be our primary objective, because it enables us to  pursue all other goals more effectively When the economic pie is larger, everyone can have a larger slice.  If resources are to be used efficiently, pric must be equal to marginal cost.
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Unformatted text preview: • If price is not equal to marginal cost, resources will be used inefficiently. • To say that resources are to be used efficiently price must equal marginal cost. Price not equal to MC is inefficient ← ← The efficiency properties of market equilibrium do not challenge the notion that it is difficult often even painful, to be poor. ← ← Instead of subsidies that change market outcomes, hurting everyone, they could return the money lost through subsidies to the poor through tax refunds. ← ← ← ←...
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