ECON 240 Study Guide - Midterm Guide: Fixed Cost, Marginal Utility, Private Good
10 May 2016
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Market economy would exist without the actions of government. Outcomes might be undesirable, government intervenes in various ways to improve them. Not much else just a brief overview. Efficiency and equity are two principal criteria for evaluating economic outcomes. Definition: defined as a situation in which it is not possible to make any person better off without making someone worse off. An allocation is said to be pareto superior to another if and only if. Everyone gets at least as much utility as they did before. If there is no allocation pareto superior, the current allocation is pareto efficient. Efficiency doesn"t depend on comparing welfare across agents. Under a broad set of conditions, a competitive equilibrium is pareto efficient. It suggests that efficiency will arise from a unfettered competition without a need for government intervention. It identifies the very restrictive assumptions under which efficiency will arise.
