mbad 5110 - ch 6 03 - Efficiency and Fairness of Markets...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Efficiency and Fairness of Markets CHAPTER 6 It is more than probable that the average man could, with no injury to his health, increase his efficiency fifty percent. Walter Scott Novelist (1771 – 1832)
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 D efine and explain the features of an efficient allocation. 2 Distinguish between value and price and define consumer surplus. 3 Distinguish between cost and price and define producer surplus.
Background image of page 2
6.1 ALLOCATION METHODS AND EFFICIENCY Resource Allocation Methods Scare resources might be allocated by Market price Command Majority rule Contest First-come, first-served Sharing equally Lottery Personal characteristics Force
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6.1 ALLOCATION METHODS AND EFFICIENCY Using Resources Efficiently Allocative efficiency is when the quantities of goods and services produced are those that people value most highly, and it is not possible to produce more of one good or service without producing less of something else. Allocative Efficiency and the PPF Production efficiency—producing on PPF Producing at the highest-valued point on PPF The PPF tells us what can be produced, but the PPF does not tell us about the value of what we produce .
Background image of page 4
6.1 ALLOCATION METHODS AND EFFICIENCY Marginal Benefit Marginal benefit is the benefit that a person receives from consuming one more unit of a good or service. People’s preferences determine marginal benefit. The marginal benefit from a good is what people are willing to forgo to get one more unit of the good. Marginal benefit decreases as the quantity
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6.1 ALLOCATION METHODS AND EFFICIENCY Marginal Cost Marginal cost is the opportunity cost of producing one more unit of a good or service and is measured by the slope of the PPF . The marginal cost of producing a good increases as more of the good is produced. The marginal cost curve shows the amount of other goods and services that we must give up to produce one more pizza.
Background image of page 6
6.1 ALLOCATION METHODS AND EFFICIENCY Efficient Allocation The efficient allocation is the highest-valued allocation. That is, the allocation is efficient if it is not
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/04/2010 for the course ECONOMICS Econ211 taught by Professor Marcus during the Spring '10 term at American University of Beirut.

Page1 / 37

mbad 5110 - ch 6 03 - Efficiency and Fairness of Markets...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online