H07EfficiencyRules - 25 Efficiency Conditions Pareto...

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1 allocative efficiency production matches tastes distributive efficiency no improvement with redistribution productive efficiency cannot produce at lower cost --- MC = for all sellers --- MB = for all buyers --- MB = MC Efficiency Efficiency 25 Quantity Marginal Cost 1 3 2 4 3 7 4 12 Rock’s Marginal Cost 1 2 4 8 Slate’s Quantity Marginal Benefit 1 6 2 4 3 3 4 2 Barney’s Marginal Benefit 9 7 4 2 Fred’s Consider p=$4 Pareto efficient cannot make someone better off without making someone else worse off at the same time Conditions PS CS Competitive Equilibrium Competitive Equilibrium 0 2 4 6 8 10 0 1 2 3 4 5 6 7 8 Quantity Price (Per Unit) D S Market Price (=4) allocative efficiency --- MB = MC production matches tastes distributive efficiency --- MB = for all buyers no improvement with redistribution productive efficiency --- MC = for all sellers cannot produce at lower cost Pareto efficient cannot make someone better off without making someone else worse off at the same time Conditions 25 PS CS Competitive Equilibrium 0 2 4 6 8 10 0 1 2 3 4 5 6 7 8 Quantity Price (Per Unit) D S Market Price (=4) Pareto efficient cannot make someone better off without making someone else worse off at the same time total economic surplus , CS+PS, maximized all units produced for which MB MC only units produced for which MB MC Conditions 25
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