ECON 201 Lecture Notes - Lecture 3: Economic Surplus, Market Failure, Marginal Cost

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Office hours in kellogg should have a list of questions. Well functioning markets maximize consumer and producer surplus. Private market equilibrium in stable, no internal force for change. Competitive markets - many buyers and sellers. Buyers and sellers feel the full costs and benefits of their actions. Buyers and sellers are fully informed, no asymmetric information . Market failure: public goods, externalities, market power, asymmetric information, public goods. Public good: a commodity of service whose benefits are not depleted by an additional user and where it is very difficult or impossible to exclude people from enjoying these benefits. Non-excludable: makes it hard to get people to pay for the benefit. Non-rival/depletable: makes it hard to justify charging someone for enjoying the benefit: externalities. Social supply curve includes both private costs to producers plus externality costs to the rest of society. Private supply (considers only private costs to producers) to the right or below the social supply curve.

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