Economics 3220 Lecture Notes - Deadweight Loss, Market Failure, Marginal Cost

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9 Feb 2013
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Suppose market output is lower then socially efficient level of output. A ql: tb= a+b+c+d, tc= d, nb= tb-tc= a+b+c. When market output is lower then socially efficient level, then economic surplus is lower then maximum. Suppose market output is higher then socially efficient level of output: q* Nb= tb-tc= g+h+j-m: area m is deadweight loss. When market output is more then socially efficient level, the economic surplus is less then maximum. Situation when competitive market fails to produce social efficient level (q*) of output either more or less output is produced. Government regulations (could fix as well ) If the marginal cost curve or mb curve does not include all factors, competitive market fails to achieve maximum social surplus. External costs are reflected through a lower msb curve then the mpb curve, since consumption affects benefits: production. External costa are reflected through a lower mpc curve than the msc curve, since production affects costs.

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