Econ Lecture - a competitive market ------ efficiency is...

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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
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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...
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This note was uploaded on 02/14/2012 for the course ECON 101 taught by Professor Gerson during the Fall '08 term at University of Michigan.

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