ECON 1 Lecture Notes - Lecture 7: Price Gouging, Economic Surplus, Excludability
3 Dec 2020
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Document Summary
Productive efficiency- competition forces the best technology and combination of resources available. This minimized the per unit cost of the outputs produced. Allocative efficiency-the correct quantity is produced relative to other goods and services. Three conditions of allocative efficiency exist simultaneously: Maximum willingness to pay = minimum acceptable price. Total surplus= sum of consumer and producer surplus is at a maximum. Efficiency losses or deadweight losses: (p. 89-90 text) Reductions of combined consumer and producer surplus result from both underproduction and overproduction. Private goods characteristics goods offered for sale in stores etc distinguished by rivalry and excludability. Rivalry- when one person buys and consumes a product, it is not available for another person to buy and consume. Excludability- sellers can keep people who do not pay for a product from obtaining its benefits, and can obtain these products. Non-rivalry one person"s consumption of a good does not preclude consumption of the good by others.
