ECON 200 Lecture Notes - Economic Surplus, Social Cost, Demand Curve
17 Mar 2014
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T inc (10%) p inc (5%) q dec (4%) Initial point method (e is price elasticity of demand?) lel= 2 p1= , p2= . 03. Q=. 06 (fall by . 06) b/c p was increasing so q decreases. What"s going to happen to q if p inc by . 1% Decisions of self-interested buyers/ sellers in perf competitive market where no gov intervention, end up maximizing total surplus that can be obtained from market. When markets fail to produce efficient outcome, called market failure (fails to max total surplus) Whenever there is a market failure, there is a potential role for government as its intervention may achieve efficiency. In some markets, decision of one agent (individual or firm) will affect well-being of another agent. Sometimes, firms/ individuals don"t bear all of consequences or reap all of rewards of their actions. If costs of an agent"s decision aren"t entirely paid by benefits are not entirely reaped, we say an externality exists.
