UT Arlington ECON 2306 - Final Exam Study Guide (3 pages)

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Final Exam Study Guide



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Final Exam Study Guide

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Pages:
3
Type:
Study Guide
School:
University of Texas at Arlington
Course:
Econ 2306 - Principles of Microeconomics
Principles of Microeconomics Documents

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ECON 2306 1st Edition Exam 4 Study Guide Lectures 5 Lecture 5 November 21 Chapter 5 Market Failures Chapter 5 Market Failures Public Goods and Externalities Market failure the inability of a market to produce a desirable product or produce it in the right amount Occurs wen competitive market system 1 does not allocate any resources whatsoever to the production of certain goods or 2 either underallocates or overallocates resources to the production of certain goods Market Failures in Competitive Markets 2 categories demand side and market side Demand side market failures underallocations of resources that occur when private demand curves understate consumers full willingness to pay for a good or service Supply side market failures overallocations of resources that occur when private supply curves understate the full cost of producing a good or service Demand Side Market Failures Rise because its impossible sometimes to charge consumers what they re willing to pay for a product Such as outdoor fireworks displays Supply Side Market Failures Happens when firm doesn t have to pay full cost of production Because it s not possible for the market to correctly weigh costs and benefits of a situation Like a coal burning plant producing pollution Efficiently Functioning Markets Competitive markets make private goods available to consumers AND allocates society s resources efficiently to the particular product Productive efficiency the production of a good in the least costly way Competitive markets also produce allocative efficiency Allocative efficiency the production of the right mix of goods and services minimum cost production assumed Ex society wants MP3 players not record players 2 conditions if a competitive market will product efficient outcomes the demand curve in market must reflect consumers full willingness to pay and the supply curve in the market must reflect all costs of production Consumer Surplus Consumer surplus the difference between the maximum price a



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