ECO 304K Lecture Notes - Lecture 11: Externality, Global Warming, Public Health

• School: UT-Austin
• Department: Economics
• Course: ECO 304K
• Professor: Hickenbottom Wayne

Document Summary

Chapter 12: general equilibrium and the efficiency of perfect competition. Efficiency: produces things people want at the least cost. Pareto efficiency or pareto optimality (page 251): a condition in which no change is possible that will make some members of society better off without making some other members of society worse off. All firms pay the same prices for inputs. If px > mcx, society gains value by producing more x. If px < mcx, society gains value by producing less x. Society will produce the efficient mix of output if all firms equate price and marginal cost. Market failure (page 256): occurs when resources are misallocated, or allocated inefficiently. The result is a waste or lost value. The presence of external costs and benefits. Efficiency of output mix comes from marginal cost pricing. Imperfect competition: an industry in which single firms have some control over price and competition. Imperfectly competitive industries give rise to an inefficient allocation of resources.