Competition and Efficiency

Competition and Efficiency - Competition and Efficiency...

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Competition and Efficiency What is consumer surplus ? How is it related to the demand curve? What is producer surplus ? How is it related to the supply curve? Do markets produce a desirable allocation of resources? Or could the market outcome be improved upon?
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We know that, because of scarcity, production of any good entails an (opportunity) cost. Whether a good should be produced is a question of whether the value society places on the good is greater than its cost. Efficiency and Competitive Markets
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Efficiency Criterion: Produce a good as long as Marginal Benefit > Marginal Cost. As we will see, this means producing so that MB = MC “Equi-Marginal Principle”
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Welfare economics Recall, the allocation of resources refers to: how much of each good is produced which producers produce it which consumers consume it Welfare economics : the study of how the allocation of resources affects economic well-being First, we look at the well-being of consumers.
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Marginal Benefit (MB) = “willingness to pay” for a good. We assume that the Marginal Benefit of a good falls at the margin. Why? Think of people lined up according to their preferences for a good Alternatively, the more you have of something, the less you value the next unit.
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A buyer’s willingness to pay for a good is the maximum amount the buyer will pay for that good. WTP measures how much the buyer values the good. name
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This note was uploaded on 04/07/2008 for the course ECO 210 taught by Professor Sun during the Fall '08 term at Grand Valley State University.

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Competition and Efficiency - Competition and Efficiency...

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