xid-6501899_2 - Tuesday,Sept27 1. Efficiency conditions,...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
T uesday, Sept 27 1. Efficiency conditions, con’t: I n an efficient competitive market: Property rights are clearly defined - all resources & factors of production are privately owned - all costs and benefits accrue to owners and users of resources so…. Social costs and benefits are equal to private costs and benefits - property rights can be voluntarily transferred (exchanged) - property rights are enforceable firm's price = MR = MC; market P = MR; individual firms have no effect on market price; Each individual firm is a price taker ie, takes the market price as given If…. Demanders are the only beneficiaries of the good… Market demand curve represents marginal social benefit If…. Suppliers are the only ones to incur production costs…. Market supply curve represents marginal social cost of production In this case, at equilibrium…. marginal private benefit (MPB) = marginal private cost (MPC) and marginal social benefit (MSB) = marginal social cost (MSC) 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
In equilibrium, demand = supply, Represents efficient use of society's resources And…. Total surplus (CS + PS) is maximized. Impossible to increase total surplus by reallocation of the good - Pareto efficiency . But….what if some of these conditions do not hold? 2 . May result in market failure When market operation does not result in Pareto efficient outcome: - in which a market fails to allocate resources efficiently; likely to occur when: Private costs of production are not equal to social costs or… Private benefits are not equal to social benefits; So, equilibrium may not represent efficient use of society’s resources Types/causes of market failure: Imperfect competition
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 6

xid-6501899_2 - Tuesday,Sept27 1. Efficiency conditions,...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online