11:373:101 Lecture Notes - Lecture 11: Dynamic Efficiency, Price System, Marginal Utility

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Topic 10 market failures, externalities, and environment. Doctrine opposing governmental interference in economic affairs beyond the minimum necessary for the maintenance of peace and property rights. Stresses individual freedom of choice and action. Static efficiency and optimal resource allocation without government intervention. Marginal utility = price = marginal cost. Dynamic efficiency: entering firms reduce costs and create new products. Assumes that existing property rights are valid. Ignores values other than economic efficiency, such as . Some consumer wants are socially undesirable (street drugs, prostitution, gambling) Some consumer preferences should not be taken at face value (power of advertising, materialism) **price system with voluntary trade does not always yield a socially desirable result market. Concentration of market power, monopolies, etc. , prevent competition. Market participants may not possess accurate or complete information. Private opportunity costs (benefits) may not reflect social opportunity costs (benefits) Oc to produce them and have value in society.

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