lecture 18 - LECTURE 18 SOCIAL EVALUATION OF THE MARKET...

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2010: LECTURE 18 1 LECTURE 18 SOCIAL EVALUATION OF THE MARKET OUTCOME - determining what would we like - using a benevolent planner and commands - the market as the solution. Mankiw: Chapter 7
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2010: LECTURE 18 2 NORMATIVE: WHAT DO WE WANT TO HAPPEN Suppose perfect world. All power given to benevolent planner: - can command people and firms around - you consume 10 soup cans - you manufacture 10 flights. - you take an airflight to Dallas at Thanskgiving .... No market. Goods allocated by the command of the planner and not by individuals voluntarily interacting through markets. What would we want her to try to do? - make people as well-off as possible. - make well-being of society as big as possible - efficient outcome.
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2010: LECTURE 18 3 HOW WOULD PLANNER ACHIEVE EFFICIENCY? To make a soup-can, must use resources which could make “other things”. Well-being from manufacturing a can of soup = MB - well-being given up from “other things” not made = MB - MC
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4 If set target 300 cans: Well-being = Well-being + . .. + Well-being from 300 cans from 1 st can from 300 th can = indicated area = ($) Can planer create more well-being by changing the target? If produced more: MB > MC : well-being increases. If ever MB > MC, well-being increases by producing more. If set target 600 cans. Consider producing 1 can less:
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This note was uploaded on 10/29/2011 for the course ECON 2010 taught by Professor Mertens,wi during the Spring '07 term at Colorado.

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lecture 18 - LECTURE 18 SOCIAL EVALUATION OF THE MARKET...

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