Overview
Socially optimal output refers to the production level that maximizes societal welfare, taking into account both benefits and costs. In contrast, actual output is determined by market forces and may not align with the socially optimal level due to factors like externalities and market failures. Unde...
Key Terms
Example: Pollution is a common example of market failure.
Example: A factory polluting a river affects nearby residents.
Example: Welfare economics evaluates the impact of taxes on social welfare.
Example: If producing one more car costs $20,000, the marginal cost is $20,000.
Example: The satisfaction from eating one more slice of pizza.
Example: Allocating resources in a way that maximizes total welfare.
Related Topics
Public Goods
Goods that are non-excludable and non-rivalrous, leading to market challenges.
intermediateCost-Benefit Analysis
A method to evaluate the total expected costs versus benefits of a project.
intermediatePrice Controls
Government regulations that set price limits on goods and services.
intermediateKey Concepts
Market FailureExternalitiesWelfare EconomicsProduction Efficiency