{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Econ Lecture - a competitive market efficiency is not the...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Econ Lecture Pareto efficient – cannot make someone better off without making anyone else worse off at the same time Allocative efficiency – production matches tastes MB = MC Distributive efficiency – no improvement with redistribution MB = for all buyers Productive efficiency – cannot produce t lower cost MC = for all sellers Total economic surplus, CS + PS maximized o All units produced for which MB > or equal to MC o Only units produced for which MB > or equal o MC A competitive equilibrium is efficient, does not waste scarce resources First theorem of welfare economics – competitive markets yield efficient outcomes Second theorem of welfare economics – any pareto efficient outcome can be optained via
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: a competitive market ------ efficiency is not the same as equity A competitive equilibrium may not be efficientin the presence of externalities Deadweight loss is the cost of an inefficient outcome in a marketplace. It can be caused when too much, past the competitive equilibrium is produced. It can also be caused when not enough is produced. Goods not traded in the market Optimal behavior : MB = MC MB > or equal to MC do more MB < MC do less Consumer surplus – marginal benefit minus price for all units Change in consumer surplus with price increase Producer surplus – price minus marginal cost for all units Government creates markets...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online