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Eff. Marketfailure

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abwa.hussain.rajkotwala2023
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11 views9 pages

Eff. Marketfailure

Uploaded by

abwa.hussain.rajkotwala2023
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Economic

where scarce
efficiency
resources are

used in the most efficient

way
to produce maximum
output
Productive when
efficiency
at
a

lowest
firm is producing the

possible cost
Best use of resources at
lowest possible cost

Allocative efficiency where

price is equal to marginal


cost firms are
producing
those goods and services
most wanted by consumers

cost addition
Marginal
total cost
the
when
to
one extra unit of
g
output
resources
allocated
are
efficiently
when price equal
marginal consumers
cost are

ready to pay what it cost


to produce the last unit

when productive and


allocative both co exit
there is best possible
use of scarce resource

Condition needed for productive


efficiency

cost of
I
OUTPUR

I ciency
product

utilization
full as

of resow
no

CONSUMER GOODS

Competition can lead to


productive efficiency
competition leads to Concest
possible cost to battle with
other firms in the market
that fails
Firm
minimising
cost will get bankrupt
x̅ Productive efficiency Marge

É Average cost

Average
revenue

QUANTITY

In firms have to produce


long run

at lowest possible point on it Avg


cost curve it is productive efficien

condition needed for allocative


efficiency
Price of product Marginal
cost of production
Allocative efficient
Quantity 1 2 3 4 5 6 7

Price 5 5 5 5 5 5 5

equal to price

marginal
cost
1 Greaterton
price Price

competitive market can lead to allocation


efficiency
firms produce those products that
consumers desire relative to cost of

production
Greatest possible will
probit push
firms to produce such products

firms in competitive market will


demanded
produce goods most
by
consumers
Pareto optimality it is impossible
to make someone better off without

making someone worse off

Pareto optimality is best circumstance


where resources are allocated in the
most efficient way

resources are not Pareto efficient


then there is for
opportunity
improvement

allocation
re of resources
welfare loss will lead
during
to

pareto optimality

Paretfficient
0
noteficient

Dynamic efficiency when resources


allocated overtime
are
efficiently
Acheived when firms meet the
needs of its market
by
changing
introducing new
production processes
in response to competitive measures

Firms invest in research and


development and product innovation
to keep their market share

Dynamic efficiency is long run


Consumer benefit from new tech and our

prices firms benefit from efficient means

of production
pr

dynamic efficiency shifts the


long cost curve downwards
run
avg

LRAC

LRAC 2

c
j
Cz

Market failure
Markets fail at delivering efficiency
Market fails when there is no
government
intervention
Market fail when it fails to make
best use of resources

when
supply and demand interaction
dont lead productive or allocative
cy

Consequences of market failure

externalities
less merit goods
high de merit goods
no public quasi public goods
Information failure
moral harard
monopoly

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