ECON 2105 Lecture Notes - Lecture 3: Passive Smoking, Marginal Cost, Market Power
24 Aug 2016
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Principle #5 of econ: voluntary trade can make society as a whole better off. Autarky = no trade: trade allows us to specialize. Principle #6: markets usually allocate resources efficiently. Efficiency: resources go to their highest valued uses first, produced by the lowest cost firms first. Ex) what is in a cup of coffee: = price = information, buyers income, price of other goods, etc, sellers labor, coffee beans, overhead, demand increases because buyers want to drink more coffee. Therefore, the price of coffee increases and the quantity of coffee increases. Increases the price to offset more money being spent to produce coffee. Ex) vietnam draft vs. all voluntary force: draft = command process (government is allocating the resources) Principle #7: government can sometimes improve market outcomes (increases market efficiency) Market failure = when the market fails to efficiency allocate resources by itself: externalities. Ex) smoking: marginal cost = private cost for an individual to smoke.
