ECON 102 Chapter Notes - Chapter 1: Perfect Competition, Marginal Cost, Kenneth Arrow

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A world of truth leads to a perfect efficient economy. Efficient economy: its impossible to make someone better off w/o making someone else worse off. In a competitive market, price of a product is equal to marginal cost of the product. If the price was lower firms would go out of business. If the price was higher firms would expand or new firms would start and that causes the price to go down. By choosing a product you are saying that the said product is worth more than all the other things that cost the same price. Results of a perfectly competitive market: companies are making things the right way, companies are making the right things, things are being made in the right proportions, things are going to the right people. You can"t get more efficient than a perfectly competitive market. Nonmarket systems have their advantages, but they also lose something really important: information.

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