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Summary

Summary Economics 114 Unit 12
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  • Course
  • Economics 114
  • Institution
  • Stellenbosch University (SUN)
  • Book
  • The Economy

Digitally summarized economics notes for economics 114. * Please note that if the display example seems smaller than A4, the downloaded version will not be like this - it will be full-sized.

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  • No
  • Unit 12
  • June 1, 2022
  • 8
  • 2021/2022
  • Summary

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  • economics 114
  • economics 114 unit 12
  • ecos summaries
  • economics 114 summaries
  • ecos unit 12
  • economics summaries
  • economics 114 unit 12 summaries

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UNIT 12: MARKETS, EFFICIENCY AND
* video 1 : Unit 12 PUBLIC POLICY

The market


largest cooperative project human
◦
the market may present the in
history
•
it is a fine-tuned machine that sends messages about the scarcity of
goods (
nobody controls it)

•
institutions matter
•
when firms have the power to set prices markets fail to maximize the total surplus : Pareto inefficient
,

•
when firms operate in perfect competition markets maximize the total surplus
,


in this unit, it shows that even competitive markets fail when market transactions impact others
•




market failure

Example : antibiotic resistance

overuse and misuse of antibiotics is a social dilemma

benefits the buyer and seller but the impact of their actions overlooked
every purchase ,
on others is

this is a market failure as the competitive produces much antibiotics
equilibrium
,
too

•
outcome is a Nash equilibrium
•
outcome is Pareto inefficient

* Another example of market failure is pollution


market failure occurs when people do not account for the costs of their decisions on others .




For markets to work well
,
institutions must :

•

protect property rights
•
enforce contracts



antibiotic effectiveness and and sold
Goods like clean water are not easily bought .




* There are no
property rights or contracts for external costs or benefits ,
leading to Pareto -




inefficient outcomes .

, Externalities

An externality of a choice is a cost or benefit imposed on a person who does not
play any
role in the choice
•
external costs and benefits are also known as external economies and dis economies
•
external effects are ignored by the agent making the choice as they do not affect the agent
,




Global negative externality
Global
warming
•




eaternat costs
marginal private cost ( MPC)

the cost for the producer of producing an additional unit of a
good ,
not taking into account
any
costs its production imposes on others leg .
Mc of producing bananas for growers]



marginal external cost ( MEC )

the cost of producing an additional unit of a good that is incurred by anyone other than the
the producer of the good leg .
Mc of banana growers on fishermen cost of harm on fish )



marginal social cost

sum of the private and external costs


MSC = MPC +
MEC

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