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Chapter 4

ECON 2100 Chapter Notes - Chapter 4: Pareto Efficiency

Course Code
ECON 2100
Ross Mc Kitrick

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Economic Efficiency- occurs when the economy's resources are allocated to their best uses; an
equilibrium is reached in which marginal benefits of an activity equal the marginal costs
Equity- concern about how a public policy or other economic decision affects people with
different levels of income; examining who gets the benefits and who pays the costs
Market Failures- market failures occur when there is a divergence between the market value of
inputs or outputs and its social value
Non-Market Values- the willingness to pay for an item that does not have a well-defined
market and, hence, market-determined price
Net Social Value- the total willingness to pay for output minus the total costs of producing that
Static Efficiency- economic efficiency at a point in time
Dynamic Efficiency- examines the allocation of resources over time (seeing if marginal benefits
equal marginal costs at each point in time, over a long time horizon
Pareto Optimality- an equilibrium in which it is impossible to make any person better off
without making someone else worse off
Private Costs- the market value of labour, raw materials, machinery, energy, and so on that
firms incur in producing goods
Social Costs- the costs that occur to society as a result of production and consumption of
goods and services
Social Cost Accounting- the enumeration of the private costs plus the external costs of
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Open Access Resources- a resource that can be used by anyone; there is no exclusion. The
atmosphere, oceans, ground-water, surface waters, and even land can be open-access
Non-Exclusion- if the good or service is made available to one person, automatically it become
available to everyone else
Non-Rivalness- when one person's consumption of a good does not diminish the amount
available to another person
Chapter 4- Economic Efficiency and Markets
October 7, 2013
12:47 PM
ECON2100 Page 1
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