Lecture 3

Question 1

4 features of perfectly comp. markets?

Answer 1

Lots of buyers/sellers
Similar/identical product
Perfect info
Not entry/exit barriers

Question 2

Why do markets fail?

Answer 2

Costs should include natural resources and energy so in principle a free market should produce at a level where resources are used efficiently.

However many environmental goods have no price and so are treated as free, so they aren’t used efficiently

Question 3

Why’s is an externality?

Answer 3

A cost or benefit that affects a party who did not choose to incur that cost or benefit.

Question 4

Marginal social cost equation?

Answer 4

MSC = MPC + MEC

Question 5

What level of production is economically efficient and sustainable?

Answer 5

When MSC = MB

Question 6

What is MNPB?

Answer 6

Marginal net private benefit - ie. Profit per unit of output

Question 7

MNPB = ?

Answer 7

MR - MPC

Question 8

MEC = ?

Answer 8

MSC - MPC

Question 9

What does the area under a marginal curve represent?

Answer 9

The total magnitude

Question 10

What happens at the quantity of output depicted by MNPB=MEC?

Answer 10

The profit from producing the last unit = the pollution damage from producing it

Question 11

Learn:
MNPB and MEC diagram
MSC, MPC and MB diagram

Answer 11

Now