251Ch5lecture1 - 9/12/2011 Allocative Efficiency Defined...

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9/12/2011 1 Chapter 5: Efficiency and Equity Lecture 1: Allocative efficiency and equilibrium Chapter 5: Efficiency and Equity Allocative Efficiency Defined Allocative efficiency = resources are used where they are most highly valued • Value here = marginal benefit • Value in best alternative = marginal cost Chapter 5: Efficiency and Equity Lecture 1: Al ocative efficiency and equilibrium Allocative Efficiency • If MB > MC → ↑ Q here • If MB < MC → ↓ Q here • If MB = MC → no change in Q Chapter 5: Efficiency and Equity Lecture 1: Al ocative efficiency and equilibrium Allocative efficiency and equilibrium • Demand = MB • Supply = MC • Equilibrium satisfies allocative efficiency Chapter 5: Efficiency and Equity
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This note was uploaded on 09/21/2011 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue University-West Lafayette.

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251Ch5lecture1 - 9/12/2011 Allocative Efficiency Defined...

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