ECON 1100 1nd Edition Lecture 24 Outline of Last Lecture I. Terminology & conceptsOutline of Current Lecture I.ParetoCurrent LectureI. ParetoPareto – social goalBest you can do & can’t do any betterIf produce little increase cars & little decrease something else – are you better off?Social Marginal Benefit = MB1 + MB2 + … + MBNMBi = person’s maximal willingness to payPeople have costs & benefitsSociety doesn’t have costs & benefits above those of peopleEconomists draw line at peopleStrong incentive not to be honest in regard to maximal willingness to paySocial Marginal Cost = MC1 + MC2 + … + MCNMCi = how much you have to pay person i to give up resources (min)Pareto improvement requires: SMB > 0SMC = 0Potential Pareto improvement requires:These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.SMB > SMCIf SMB < SMC then don’t build, think about having lessEfficiency – an efficient allocationOften SMB = MB of 1 consumerMC of 1Goal: efficient allocation -> SMB = SMC for all goodsSMC = $ MUiConsumer purchase until P = MUiCompetitive firms produce till P = MCSMC = MCjJ = firm that produces SMB = (MUi = P = MCj) = SMC(…) = market wants SMB = SMC2nd = is consumer utility max3rd = is firm profit
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