MARK 4500 Lecture Notes - Lecture 10: Flamethrower, Deadweight Loss, Avoidance Speech

• School: University of Georgia
• Department: Marketing
• Course: MARK 4500
• Professor: Sharma

Document Summary

The demand (cid:272)u(cid:396)(cid:448)e sho(cid:449)s (cid:271)uye(cid:396)s" (cid:373)a(cid:396)gi(cid:374)al benefit. The supply (cid:272)u(cid:396)(cid:448)e sho(cid:449)s the selle(cid:396)s" (cid:373)a(cid:396)gi(cid:374)al cost. At equilibrium: marginal benefit = marginal cost, resource allocation is efficient and the market delivers the efficient quantity. If a firm underestimates the markets demand, they will experience a shortage and could potentially lose customers. Total surplus = consumer surplus + producer surplus. Buyers seek the lowest possible price and sellers seek the highest possible price. As buyers and sellers pursue their self-interest, the social interest is served. Adam smith (the founder of modern economics) wrote the wealth of nations (1776: suggested that competitive markets send resources to the uses in which they have the highest value. Market failure is a situation in which the market delivers an inefficient outcome. Inefficiency can occur because: too little is produced underproduction (ex: tesla flame thrower, too much is produced overproduction (ex: beer)