ECO 1104 Chapter Notes - Chapter 6: Price Ceiling, Deadweight Loss, Economic Surplus

• School: University of Ottawa
• Department: Economics
• Course: ECO 1104
• Professor: Harris

Document Summary

Encouraging or discouraging consumption of certain goods. Model has assumed that markets work efficiently, but not always true. Eg if only one producer with no competition inefficiently high price. Eg one person"s use of something imposes on the costs of other people (eg pollution from burning gas in car) Market failure: situations in which the assumption of efficient, competitive markets fail to hold. When this happens intervention can increase total surplus. Efficient markets maximize total surplus but can still be seen as unfair, so another reason to intervene is to change the distribution of the surplus. Eg even if job market = efficient, wages can drop low so workers fall below poverty line while employers make lots of $ Government can intervene in labour market to impose min wage change distribution of surplus . Changing distribution of surplus reduce employers" profits and lift workers" incomes.