Lecture 13

Lecture 13 - participant in a competitive market it’s “led by an invisible hand” Markets can be inefficient in face of price/quantity

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February 11, 2009 Command and Market Price are the main allocation methods If it’s produced efficiently, it’s on the PPF. Why does the market decide on the efficient allocation? Invisible hand. Total consumer surplus – the marginal benefit from a good or service minus the price paid for it, summed over the quantity consumed (area above… the triangle area) Total producer surplus – similar Total surplus – the sum of consumer surplus and producer surplus Adam Smith in Wealth of Nations (1776) suggested that competitive markets send resources to the uses in which they have the highest value. He believed that each
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Unformatted text preview: participant in a competitive market it’s “led by an invisible hand” Markets can be inefficient in face of: price/quantity regulations, taxes & subsidies, externalities, monopoly Deadweight loss – decrease I total surplus and that results from an inefficient underproduction or overproduction Overproduction – when the govt pays producers a subsidy Extracting circles - ??DEFINE CHAPTER 7 Price Ceilings & Floors Price ceiling or price cap – a govt regulation that places an upper limit on price of a Consumer surplus = A+D Producer surplus = B+C + E...
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This note was uploaded on 09/29/2009 for the course ECON 101 taught by Professor Balaban during the Spring '07 term at UNC.

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