ECON 2010 Lecture Notes - Lecture 19: Inflation-Indexed Bond, Traffic Congestion, Marginal Cost

• School: CU-Boulder
• Department: Economics
• Course: ECON 2010
• Professor: Alexander Hill

Document Summary

Many buyers and sellers, perfect information, property rights. Adam smith: individual ambition serves the common good . When these conditions break down, markets are no longer efficient. Clear distinction between equity enhancing policies and efficiency enhancing policies. Market failure is not a liberal vs. conservative issue. Markets can operate efficiently but we don"t like the outcome (equity) Demand curve = marginal private benefit curve (mpb) Measures benefit of an additional good/service to the consumer. Marginal social benefit curve (msb) measures benefit of an additional good/service to society. Adam smith implies that they are the same. Supply curve = marginal private cost curve (mpc) Measures cost of an additional good/service to a firm or individual. Marginal social cost curve (msc) measures cost of an additional good/service to society. Can have situation where both msc and msb are different from private. An effect from an individuals, or firms, decision that is not included in their process of decision-making.