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    Socially Efficient and Inefficient Market Outcomes

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    parminderpcs

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    Socially Efficient and Inefficient Market Outcomes

    Uploaded by

    parminderpcs
    8 views14 pages

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    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    8 views14 pages

    Socially Efficient and Inefficient Market Outcomes

    Uploaded by

    parminderpcs

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
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    Socially Efficient and

    Inefficient Market Outcomes


    Allocative Efficiency (Socially Optimal)
    • Price = Marginal Cost
    • Also shown as equilibrium on a
    market graph
    • Total economic surplus is maximized
    at this point (Consumer + Producer
    Surplus)
    1. A couple of things
    to notice- the
    demand curve is Price
    consumers
    marginal benefit,
    and the supply S=MC
    curve is producers
    marginal cost.
    2. If you’re at
    equilibrium, then
    p
    MB=MC
    3. In addition, this is
    also known as the
    socially efficient
    quantity, so it’s
    also where D= MB
    MSB=MSC q Quantity
    Deadweight Loss
    • What is deadweight loss? The
    simple definition is it’s a loss of total
    (consumer + producer) surplus.
    • Deadweight loss occurs anytime you
    move away from equilibrium due to
    government interference or
    externalities.
    What graphs show deadweight loss?
    • Monopoly
    • Monopolistic
    • Tax graphs
    • Price Ceiling/Price Floor
    • Positive Externalities
    • Negative Externalities
    • (But not a market in equilibrium or a perfectly competitive firm in the
    long-run)

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