principle of economics

Economics
Tutor: None Selected Time limit: 1 Day

    What 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.

Jul 14th, 2015

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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.


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Jul 14th, 2015

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