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CS 11 ECON EFFICIENCY

CS 11 ECON EFFICIENCY - Before Price Control After Price...

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CLASS SUPPLEMENT # 11 ECONOMIC 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 = MC Total Market Surplus (TMS) is maximized. TMS = TCS + TPS C The gain from trade to all participants. C It is maximized at equilibrium without any price controls. C At equilibrium all gains have been exhausted, i.e, DWL = 0.
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