Chap003.13 - An Introduction Slide 76 Markets and Social...

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13 Chapter 3 - Supply and Demand: An Introduction Slide 73 Price Controls in the Pizza Market Price ($ per slice) Quantity (1000s of slices per day) Excess demand = $8,000 slices/day D 4 2 3 81 21 6 Assume price controls = $2 Quantity supplied falls to 8,000 Buyer’s reservation price ($4) is greater than seller’s ($2) Both would benefit from additional production There is CASH ON THE TABLE S Chapter 3 - Supply and Demand: An Introduction Slide 74 Markets and Social Welfare ± Cash On The Table z Economic metaphor for unexploited gains from exchange. ± The free-market equilibrium does not leave any cash on the table. Chapter 3 - Supply and Demand: An Introduction Slide 75 Markets and Social Welfare ± Socially optimal quantity z The quantity of a good that results in the maximum possible economic surplus from producing and consuming the good ± The socially optimal quantity occurs when MC = MB Chapter 3 - Supply and Demand:
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Unformatted text preview: An Introduction Slide 76 Markets and Social Welfare Economic efficiency occurs when all goods and services are produced and consumed at their respective socially optimal levels Achieving economic efficiency z Maximizes the economic surplus z Increases the economic pie Chapter 3 - Supply and Demand: An Introduction Slide 77 Markets and Social Welfare When is the market equilibrium efficient? z When all costs of producing the good or service are borne directly by the seller z When all benefits from the good or service accrue directly to buyers Chapter 3 - Supply and Demand: An Introduction Slide 78 Markets and Social Welfare Inefficient market equilibrium z When some costs of production fall on people other than those who sell the good or service z When some benefits from the good or service accrue to people who did not buy the good or service...
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