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First you need a measure of social well being. There are some criteria that have been proposed, and you need to survey the members of that society to determine their well being under various circumstances. What studies suggest is that for economies that have lower per capita income, happiness and well being is correlated to increases in the GNP. For economies were per capita income is already fairly high, there is little correlation to happiness and additional increases in income.Externalities are costs or benefits not transmitted in prices. To the extent that our supply and demand curves always reflect price in some sense, then the equilibrium point of those curves will not necessarily reflect the optimum level of well being, since externalities are not reflected in prices and affect people other than those conducting the business detailed in the two functions.
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Jul 14th, 2015
Oct 22nd, 2016
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