Econ103part03 - Part 3 Markets and Efficiency Concept of...

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Part 3 Markets and Efficiency Concept of economic (allocative) efficiency introduced previously Decreasing marginal benefits and increasing marginal costs Efficient allocation where MB = MC This assumes all costs and benefits are included (including environmental costs) Do competitive markets produce efficient outcomes?
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Demand and Marginal Benefit People value many different goods and services The total benefit (value) of a good to a person is the benefit gained from the whole of the amount of the good consumed The marginal benefit (value) of a good to a person is the additional benefit that consuming the last unit provides A person’s relative valuation of a good is expressed in their willingness to pay
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Willingness to Pay People have a limited budget so that purchasing one thing for $5 means not purchasing the other things that $5 could have bought If I pay $5 for a unit of a good it means I value that unit of that good at least as much as (and maybe more than) the other things I could have bought for $5 My willingness to pay for the last unit I purchase is a measure of its marginal benefit to me
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Willingness to Pay Willingness to pay for additional units of a good declines with quantity for each individual People vary in their willingness
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This note was uploaded on 01/28/2011 for the course ECON 103 taught by Professor Rutherford during the Winter '10 term at University of Victoria.

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Econ103part03 - Part 3 Markets and Efficiency Concept of...

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