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ECON 3220 (17)
Ali Kamar (17)
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Chapter 4a.docx

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Department
Economics
Course
ECON 3220
Professor
Ali Kamar
Semester
Winter

Description
Chapter 4a How to prove that ES is Q*  Suppose market output is lower then socially efficient level of output  At Q* o NB= A+B+C+F L  A Q o TB= A+B+C+D o TC= D o NB= TB-TC= A+B+C  Area F is deadweight loss  When market output is lower then socially efficient level, then economic surplus is lower then maximum  Suppose market output is higher then socially efficient level of output o Q*  NB= G+H+J H o At Q  TB= G+H+I+J+K+L+N  TC= I+K+M+N  NB= TB-TC= G+H+J-M o Area M is deadweight loss  When market output is more then socially efficient level, the economic surplus is less then maximum What is market failure?  Situation when competitive market fails to produce social efficient level (Q*) of output – either more or less output is produced  ES is not maximized  DWL will occur
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