Add-Class 10/29

Sunday, October 29, 2023 10:33 AM

Market Success:
Allocative efficiency
The allocation of resources (Quantity) which could maximize total welfare / which is most desired by the society
Where MB = MC (S=D)
Market failure
The allocation of resources by market forces cannot achieve allocative efficiency.

1. Externality
The third party (Not the producer or the consumer) effect generated from the consumption/production
of the product
本质：会让个人的 cost/benefit 和社会的 cost/benefit 产生差异, 从而做不出符合社会的allocative efficiency 要求的allocation
Marginal Private benefit: MPB
the additional benefit consumers gains from consuming another unit of product
Marginal Social benefit: MSB
the additional benefit society gains from consuming another unit of product
Marginal Private cost: MPC
the additional cost firms spent on producing another unit of product
Marginal Social cost: MSC
the additional cost society spent on consuming another unit of product

MSB = MPB + External Benefit

MSC = MPC + External Cost

折磨人的Externality的作图方法
1. Demand and Supply [D labeled as MPB, S labeled as MPC]

2. 判断Consumption/production 的 externality
如果是Consumption, MPC=MSC （生产者没问题），准备画MSB
如果是Production, MPB= MSB（消费者没问题），准备画MSC

3. 然后再判断是positive/negative 的externality
如果positive, 那就是 +MPB 或者 -MPC 得到MSB/MSC
如果是negative, 那就是 -MPB 或者 +MPC 得到MSB/MSC

4. MSB=MSC 的quantity Qs 就是 social optimal quantity

会有一个Qe为边，Qs为对应角的三角形是deadeweight loss

Negative consumption externality:

MSB<MPB, Qe>Qs, overallocation of resources (市场过度生产)
Real life example: Cigarette/alcohol/traffic congestion

Negative production externality:

IB Econ Page 1
MSB<MPB, Qe>Qs, overallocation of resources (市场过度生产)
Real life example: Cigarette/alcohol/traffic congestion

Negative production externality:

MSC>MPC, Qe>Qs, overallocation of resources
Real life example: Air/water/noise pollution

Positive consumption externality:

MSB>MPB,Qe<Qs,x

IB Econ Page 2