L6. Markets and Efficiency with questions

L6. Markets and Efficiency with questions - PrivateMarkets...

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Private Markets n Market equilibrium q Demand=Supply q Point pm and qm n Markets tend to equilibrium q Point p1 causes excess supply, supply q1 is greater than demand q0. q Prices fall and equilibrium is restored n Unrestricted interactions and transactions result in equilibrium Costs and Price Quantity of Output S qm q1 D p1 pm q0
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Clicker Question: When do markets mimic social  efficiency A. When the aggregate market demand curve for the product equals marginal social benefits. B. When the aggregate market supply curve equals marginal social cost. C. When both A. and B. hold true.
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Markets and Static Social Efficiency n Are market values p m and q m socially efficient? n Social efficiency implies MSB=MSC n Thus demand curve and MSB have to coincide n Supply curve and MSC have to coincide n If conditions met, market outcomes are socially efficient n If not met market outcomes are not socially efficient Costs and Benefits Quantity of Output q* MSB MSC p*
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Social Costs and Private Costs n Social Efficiency: Based on social costs n Market: Supply based on private costs n When will the two diverge? q Example: Logging in BC n Private cost: labor, equipment, fuel to chop and transport logs out of the forest n Social costs: private costs + cost of logging road + ecological costs on wildlife etc. q
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L6. Markets and Efficiency with questions - PrivateMarkets...

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