CLASS SUPPLEMENT # 11ECONOMIC EFFICIENCY (Page 1 of 2)Perfect Competition leads to “Economic Efficiency.”Economic Efficiency has two components:1. Productive Efficiency:The least-cost method of pdn is used(the cost curves are as low as possible)Pdn is at the Q where ATC is minimized.2. Allocative Efficiency:Pdn is at the Q where P = MCTotal Market Surplus (TMS) is maximized.TMS = TCS + TPSCThe gain from trade to all participants.CIt is maximized at equilibrium without any price controls. CAt equilibrium all gains have been exhausted, i.e, DWL = 0.
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