MGMT 4A Lecture Notes - Lecture 15: Pareto Efficiency, Allocative Efficiency, Economic Surplus
Document Summary
His legacy left use with a way of designing the efficiency of allocating resource. Firms uses minimum resources to produce output. Using the best available technology possible to produce efficiency. Condition holds with competitive industry in long run. Pareto optimal when no possible reorganization of production can make anyone better off without making someone else worse off. An economy is clearly inefficient if it operates inside the ppf and no one need suffer a decline in utility by moving to ppe. Allocative efficiency requires not only that the right mix of goods be produced but also that these goods bt allocated among consumers to maximize consumer satisfaction. Perfect competition leads to pareto optimality -so we use perfect competition as the benchmark to compare all other forms of competition. Demand willingness to pay reflects social benefits. Social benefit = social cost is when supply = demand. Marginal cost (mc) = marginal benefit (mb) or utility of consumption.
