Econ 4 - Econ462011Ch17 14:18 PerfectCompetitionEquilibrium...

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Econ 4-6-2011 Ch 17 14:18 Perfect Competition Equilibrium S=D Outcome is efficient Society cannot be made better off with gov’t intervention. We have assumed all costs and benefits are private Hiring labor, paying electricity are private Some costs of production could affect others in society: pollution Our basic assumption: private entries/markets compare MPC and MPB (Marginal  Private Costs/Benefits) Firms maximize own profits MPC=MSC, MPB=MSB Supply=MPC, Demand=MPB When firms are taxed, the supply curve shifts up Optimal Pollution Level? Wrong answer: No Right Answer: apply marginal analysis o MSC vs. MSB The real problem, there may not be agreement on SB and SC Pollution arising from market Market o Firms/individuals react to private incentives Externality: the existence of external costs or benefits to an action
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External Costs: an uncompensated cost that an individual or firm imposes on 
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This note was uploaded on 10/04/2011 for the course ECON 201 taught by Professor C.liedholm during the Spring '07 term at Michigan State University.

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Econ 4 - Econ462011Ch17 14:18 PerfectCompetitionEquilibrium...

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