MGEA02H3 Lecture : Lecture notes week 11

• School: UTSC
• Department: Economics for Management Studies
• Course: MGEA02H3
• Professor: Gordon Cleveland

Document Summary

When markets work well, they work very well . Competitive markets (usually) allocate resources to deliver maximum gain to society! At competitive equilibrium, p = mc or the marginal benefit of additional output = marginal cost of additional output. But markets sometimes do not work well (i. e. , markets fail) . N when there is only a small number of producers (oligopoly) or only one producer (monopoly) N when a good (or service) has substantial external costs (external costs are ones that producers ignore in their decisions e. g. , pollution) N when a good (or service) has substantial external benefits (external benefits are ones that consume ignore in their decisions to consume e. g. , education) N when a good is a public good: i. e. , (1) it is collectively consumed, and (2) consumers cannot be excluded from consuming the good. In all these cases, markets fail to work well, governments may need to correct what markets would naturally do!