ECON 367 Lecture Notes - Lecture 8: Pareto Efficiency, Diminishing Returns, Allocative Efficiency
Document Summary
Econ 367: economic analysis of law (lecture 8) Coca cola example of efficiency: (review of last class: productive: maximizing the ration of output to input (most coke out for least ingredients in, allocative: producing the right output of coke for society (mc=mb) Supply=mc; making coke uses up resources that could have been used somewhere else (oc! ), cost increases as more is coke is supplied because the more you make the more you use up. Demand=mb; downward sloping because of the law of diminishing marginal returns, which states that you enjoy the first coke more than the last". > when at equilibrium on a s&d curve (aka mb&mc curve), you have achieved allocative efficiency. The distance between the cost and benefit= free happiness! Government intervention: (just a fancy term for the law) Voluntary agreements are usually pareto superior moves (win/win, or at least win/neutral) Price floors: excess supply pushes price down; when price can"t fall, free happiness lost! (ex.
