• Social Inefficiency Basics

How can inefficiency occur in a perfectly competitive market?

Why are imperfectly competitive markets inefficient?

Where does exchange occur in an unregulated market?

Describe the differences between public and private goods and how they impact market inefficiency.

What are the causes of and ways to measure wealth and income inequality?

What is the goal of government intervention in an inefficient market?

Visualizations and Calculations

• Social Efficiency in the Market for Stuff

Draw a market that has achieved social efficiency. Be sure to correctly label all axes and curves. Label MPB, MPC, MSB, MSC, the socially optimal output quantity, and total economic surplus.

• Externalities

What are the causes of externalities?

Sketch a graph for each of the two main types of externalities.

• Calculations in the Inefficient Market for Best Stuff

Sketch a market for Best Stuff that has a marginal external benefit. The equilibrium quantity is 100, and the equilibrium price is $20. Marginal social benefit intersects the equilibrium quantity at $30, and it intersects marginal social cost at 200 units and $25.

What is the value of the deadweight loss?

What is the price of the marginal external benefit?

What type of intervention could correct the inefficiency? (include the price value of the intervention)

• Comparing Market Structures

PART A) Draw a perfectly competitive market next to a monopoly. Illustrate the impact of a price ceiling in each market. Be sure to use arrows to indicate changes in output quantity and price.

PART B) Draw a monopsonistic labor market. Illustrate the impact of a minimum wage, labeling the changes in units of labor hired and wage rate.

PART C) Draw a natural monopoly market. Label the unregulated market price and output, the fair return price and output, and the socially optimal price and output. Explain what must occur for the natural monopolist to produce the allocatively efficient quantity.

Inequality?The Lorenz Curve

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