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Even though both a and b will be better off after

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Unformatted text preview: er off by $3 and B is better off by $2. » Even though both A and B will be better off after Even both and such transaction, in the absence of a market for tutorial places it cannot take place. » What about fairness? What Key Ideas Key Market failure Market » Market mechanism in most cases is the most Market is efficient way to allocate resources » Sometimes markets do not work very well – need Sometimes need for government intervention » Public Goods and Externalities (Ch.13) Public » Example: Emissions Trading Scheme (ETS) Example: Emissions proposed by the Australian Government proposed Key Ideas Key Opportunity Cost Opportunity » Scarcity implies that people must make Scarcity choices » In order to get something one needs to give In up something else » Opportunity Cost – value of the next best Opportunity value alternative » Example: instead of going to a lecture you Example: instead could have been working at @$20 per hour » Thus the OC of a 2 hour lecture is $40 Thus Key Ideas Key Thinking on the margin Thinking » In order to predict market outcomes we need to In make assumptions about people’s behaviour » Typically economists assume that people make Typically choices by comparing Marginal Benefit to to Marginal Cost (Cost-Benefit Analysis) » Marginal refers additional benefit or cost from Marginal additional benefit one additional unit of some activity additional unit Key Ideas Key Thinking on the margin Thinking » Maximizing behaviour: do something as long M...
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