ECON 1000 Chapter Notes - Chapter 5: Marginal Utility, Demand Curve, Marginal Cost

• School: York University
• Department: Economics
• Course: ECON 1000
• Professor: Karen Bernhardt-Walther

Document Summary

Marginal benefit is measured by the maximum price that is willingly paid for another unit of the good or service: since willingness to pay determines demand, a demand curve is a marginal benefit curve. Therefore, at equilibrium a competitive market achieves allocative efficiency: total surplus: the sum of consumer surplus and producer surplus, when the efficient quantity is produced, total surplus is maximized. Buyers and sellers acting in their own interests end up promoting the social interest: market failure, a situation in which a market delivers and inefficient outcome usually caused by either underproduction or overproduction. Marginal social benefit and marginal social cost are unbalanced: the scale of inefficiency is measured by deadweight loss which is equal to the decrease in total surplus that results from inefficient levels of production. The result is overproduction: when an apartment owner installs a smoke detector, he/she does not consider the external benefit to her neighbour.