Bài giảng Economic efficieny and markets

Basic assumptions: Consumers: maximizing the level of satisfaction (utility) Producers: maximizing their profit A set of "ideal" conditions are satisfied. Perfectly competitive market Freedom of choice based on self interest and rational behavior the absence of external effects; the absence of public goods/clear ownership rights all households and firms have complete information; all households and firms act as price takers. Price Quantity per period S D P* Q* Price Quantity per period D = MB Price Quantity per period D = MB = Marginal willingness to pay q One person’s demand q1 q2 P2 P1 Price Quantity per period D1+D2 =D = Social MB D1 D2 q1 q2 Q Adding up individual demands to get market demand The value consumers obtain P Q D Pm qm 0 Consumers obtain more value if they have more of the good P Q qm2 0 qm1 Market demand curve: negatively sloped A ship in market demand curve: Income Prices of related goods Consumer preferences for the product considered Number of relevant consumers Price Quantity per period S = MC D = MB P* Q* Price Quantity per period S = MC Price Quantity per period Si = MC q1 q2 q3 p3 p2 p1 One firm only Price Quantity per period Market Supply (=S1+S2) S1 S2 P Q1 Q2 Q = Q1 + Q2 Adding up individual firm’s supplies to get market supply The value obtained by producers P Q S qm P1 0 Producers may be able to obtain more value if they sell more goods P Q S qm2 0 qm1 Market supply curve: positive sloped A ship in market demand curve: Prices of resources productivity of factors of production Number of relevant firms P Q S D P* Q* Consumer Surplus Producer Surplus P Q MC MB P3 Q* Q2 Q1 A B D C E P1 P2 P4 Pareto optimality: MB =MC