condition must be met in order to conclude that an economy is maximizing
social well-being? Do the
equilibriums given by individual markets necessarily lead to the
maximization of social well-being (that is, if demand is equal to supply,
can you conclude that well-being is maximized)? Explain why/why not making sure to
discuss marginal social benefits and costs, marginal private benefits and
costs, and demand and supply.
Thank you for the opportunity to help you with your question!
ANS 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.
Please let me know if you need any clarification. I'm always happy to answer your questions.
Jul 14th, 2015
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