Chapter 6 - Efficiency and Exchange

Chapter 6 - Efficiency and Exchange - Efficiency and...

Info icon This preview shows pages 1–2. Sign up to view the full content.

Efficiency and Exchange – Principles of Economics (Ch.6) 24/11/10 Market Equilibrium and Efficiency: Markets not only produce goods, they produce them as efficient as possible. Efficiency (Pareto efficiency): a situation is efficient if no change is possible that will help some people without harming other people o Disequilibrium: exchange that helps some people without harming others in a meaning of free lunch exist (No-Cash-on-the-table Principle) Possibility to generate additional economic surplus if a market is out of equilibrium Waste if an market is out of equilibrium and therewith does not meet his optimum economic surplus the economic pie can be made larger which means a larger slice for everyone (for rich as well as for the poorest) o Equilibrium: quantity demanded equals quantity supplied Economic surplus is maximised (Sum of consumer and supplier surplus) Pursue every goal more fully (with maximised economic surplus and market equilibrium) o Efficiency does not mean the same as good ! Criteria: 1. Buyers and sellers are well informed: Otherwise it will be difficult to evaluate the price they are willing to pay 2. Markets are perfectly competitive: Otherwise a monopolist can influence the marginal cost and price 3. The demand and supply curve satisfy certain restrictions: Supply curve includes all relevant costs of production Demand curve captures all relevant benefits of acquiring additional units 4. Transaction costs are low: e.g. high tax costs of buying and selling houses can lead to inequalities
Image of page 1

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

Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern