ECON101 Chapter 5: Chapter 5. Efficiency and Equity (3)

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Corey Van De Waal

Document Summary

So, the market demand curve for a good/service tells us the marginal social benefit from it. And the market supply curve of a good/service tells us the marginal social cost of producing it. Equilibrium in a competitive market occurs when the quantity demanded = the quantity supplied. At the intersection of the demand curve and the supply curve. At this intersection, marginal social benefit on the demand curve. = marginal social cost on the supply curve. This equality is the condition for allocative efficiency. So in equilibrium, a competitive market achieves allocative efficiency. The sum of consumer surplus and producer surplus: total surplus. When the efficient quantity is produced, total surplus is maximized. Buyers and sellers acting in their self-interest end up promoting the social interest. When a market is inefficient, the outcome is market failure. Underproduction example: the quantity of pizzas produced is.