Ttaro PDF

Preview

Summary

Contains examples and models of TTARO. Prof Janis...

Description

What makes the allocation of resources good? 1. Does whatever is being produced go to the high-value users? a. Willingness to pay reflects price b. Externalities, equity issues, income restrictions c. No one is getting it who values it below equilibrium point 2. Is it being produced at the lowest possible cost? a. At price, only firms producing below equilibrium price are right consumers b. Externalities, equity issues--> child labor 2. Is the best amount being produced? a. Are we producing/consuming every unit that has a value greater then its cost and no more? b. Value of inputs sold to produce each additional unit of output If all three pass, PERFECT COMPETITION  

o

o

o

Gains vs. Pain  Self interest/greed Firm aims to maximize total revenue  MR=MC  MR>MC, build business Consumer tries o better off well-being  MU=P  MU>P, buy product Society wants to maximizes total surplus  MU=MC  MU>MC, gain is more than pain, do it Perfect Competition  Demand: MU=P  Supply: MR=MC  MU=MC...