⏱️ November 15, 2020
Socially efficient market outcomes are the optimal distribution of all resources in society while taking into account all internal and external costs and benefits. In our study of economics, socially efficient takes place where marginal social benefit (MSB) = marginal social cost (MSC).
Marginal Social Benefit (MSB) is the additional benefit received by all members of society due to the consumption of an additional unit of a good or service. This includes both those who directly benefit from consuming the foods, and those who receive spillover benefits, or external benefits experienced by third parties, from consumption.
Marginal Social Cost (MSC) is the additional cost incurred by all members of society due to the consumption of an additional unit of a good or service. This includes both the private cost paid by the producers along with spillover costs, which are external costs faced by third parties.
When you are producing at the quantity and price level where MSB = MSC, you are producing at the socially efficient point. At this point, we maximize all economic surplus. If you choose a quantity on either side of the equilibrium quantity, you are producing an inefficient quantity, and it will result in deadweight loss.
In the graph above, if we were to produce either at a quantity above or below the equilibrium, we would be producing at an inefficient point where we are either underproducing or overproducing the good or service. The government sometimes has to take action or make policies to correct these inefficiencies.
💸 Unit 1: Basic Economic Concepts
1.0Unit 1: Basic Economic Concepts
1.1Basic Economic Concepts: Scarcity
1.2Resource Allocation and Economic Systems
1.3Production Possibilities Curve (PPC)
📈 Unit 2: Supply and Demand
2.4Price Elasticity of Supply
2.6Market Equilibrium and Consumer and Producer Surplus
2.7Market Disequilibrium and Changes in Equilibrium
2.8The Effects of Government Intervention in Markets
⚙️ Unit 3: Production, Cost, and the Perfect Competition Model
3.6Firms' Short-Run Decisions to Produce and Long-Run Decisions to Enter or Exit a Market
📊 Unit 4: Imperfect Competition
4.1Introduction to Imperfectly Competitive Markets
💰 Unit 5: Factor Markets
5.2Changes in Factor Demand and Factor Supply
5.3Profit-Maximizing Behavior in Perfectly Competitive Factor Markets
🏛 Unit 6: Market Failure and Role of Government
6.1Socially Efficient and Inefficient Market Outcomes
6.3Public and Private Goods
6.4The Effects of Government Intervention in Different Market Structures
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