Economics 1010 Chapter Notes - Chapter 5: Competitive Equilibrium, Avoidance Speech, Deadweight Loss

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12 Oct 2012

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An efficient allocation of resources occurs when we produce the goods and services that people value the most highly. Resources are allocated efficiently when it is not possible to produce more of a good or service without giving up some other good or service that is valued more highly. Efficiency is based on value, which is determined by people s preferences. If the marginal cost of a good equals its marginal benefit, resources are being used efficiently. The value of one more unit of a good or service is its marginal benefit, which we can measure as the maximum price that a person is willing to pay. A demand curve for a good or service shows the quanitiy demanded at each price. A demand curve also shows the maximum price that consumers are willing to pay at each quantity. This price measures the marginal benefit of a good at a given quantity.

Related Questions

Consider Marginal Cost and Price, and choose the best statement.

a. The price of one more unit of a good or service is its marginal cost.

b. The marginal cost of producing one more unit of a good or service is equal to the marginal benefit.

c. The cost of producing one more unit of a good or service is its marginal cost and we measure the marginal cost as the area above the supply curve and below the market price.

d. The cost of producing one more unit of a good or service is its marginal cost, which is the minimum price that producers must receive to induce them to offer to sell another unit of the good or service.

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The idea of efficiency often arises when measuring a society's well-being. There are two kinds of efficiency: productive efficiency and allocative efficiency.

What can the government do to promote allocative efficiency?

(i) Allocate resources so that all types of goods and services are produced in the same amount.

(ii) Allocate all resources to maximize the production of the one product most desired by society.

(iii) Take responsibility for distributing resources equally among the rich and the poor, regardless of people's preferences.

(iv) Impose a minimum of interference in the market, thus enabling the people who are willing to pay the most for a given good or service to obtain it.

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11. If resources are allocated efficiently A) consumer surplus exceeds producer surplus. B) producer surplus exceeds consumer surplus. the sum of consumer surplus and producer surplus is maximized. marginal benefit is maximized. marginal cost is minimized.

Economics 1010 Chapter Notes - Chapter 5: Competitive Equilibrium, Avoidance Speech, Deadweight Loss

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