session2 - Efficiency and Markets I In the last chapter we...

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Unformatted text preview: Efficiency and Markets July 14, 2011 I In the last chapter we discussed about how social decisions are made from individual preferences. I A basic normative question of economics: How much of a good or service should be produced and who should produce and consume it? I Environment context: How much pollution should be produced? I Is total elimination of pollution beneficial for the society?Is it efficient? What is Efficiency? I Why competition is regarded as a good thing for the economy? I Two reasons: I Competition helps the market economy to work smoothly according to the decisions made by consumers and producers. I The outcome achieved by the market economy is efficient. In what sense? I Pareto Criterion:it is not possible to make somebody better off without making others worse off. I Pareto frontier I An allocation is efficient, or Pareto optimal, if it lies on the Pareto frontier. That is it is not possible to make somebody better off without making others worse off. I efficiency is not the only goal of the economy...
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This note was uploaded on 08/13/2011 for the course ECO 373 taught by Professor Maryamsami during the Summer '11 term at SUNY Stony Brook.

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session2 - Efficiency and Markets I In the last chapter we...

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