ECON-2086EL Chapter Notes - Chapter 2: Market Failure, Perfect Competition, Imperfect Competition
22 Nov 2017
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The example used in this section is potatoes people enjoy potatoes and gain satisfaction from each additional potato they acquire. At some point, the satisfaction diminishes and become less satisfying. That is, a person only enjoys the potato with respect to the price. Economists assume people are rational and will cease to buy potatoes at a point where the benefits of buying said potato exceed the cost of purchasing it. People stop buying a good when the marginal benefit = the price. As well, people stop buying when the marginal cost = price. Therefore, the marginal benefit = marginal cost principle. The market will come to an equilibrium when the consumer only demands what their marginal benefit tells them to with respect to the price. If we let the consumers and the market act freely, we call is. Laissez faire (cid:449)hi(cid:272)h loosely (cid:373)ea(cid:374)s (cid:862)let it (cid:271)e(cid:863).
