ECO102H1 Lecture Notes - Allocative Efficiency, Perfect Competition, Marginal Cost
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ECO102H1 Full Course Notes
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Lumber mills dump toxins into adjourning lakes, thereby reducing the recreational value of the lakes. Lumber mills are not required to compensate users of the lakes (or cottage owners) for the decline in recreational quality(value) of the lakes. Will the price paid by consumer for lumber be. The cost of the pollutants (toxins) is not reflected in the market price of lumber. Will the market for lumber produce an allocationally efficient level of output. The point where price (value to the buyer) = marginal cost (cost for the producer to produce the last unit sold). The marginal cost has to reflect both the total cost and the social cost. Externality: transaction between buyer and seller affects third party. When the product is made vs. when the product is bought. In general, market outcome is not efficient ( market failure ) and government intervention can improve market outcome.
