Economic Efficiency

Economic Efficiency

1. Monopolies

   • Natural Monopolies
     • Created by high entry barriers into markets
     • Deadweight Loss
       • Decrease in consumer surplus
         • is greater than
         • Higher prices and lower quantities demanded
       • Increase in producer surplus
         • Increased profit per unit sold
   • Public Franchise
     • Examples
       • Utilities
       • Railroads
     • Promoted or established by Government policies
       • Government-regulated prices and quantities
   • Economic efficiency compromised

2. Perfectly Competitive Markets

   • Productive Efficiency is maximized by firms
     • Producers produce to match demand and make a profit
       • Producers produce quantities and sell at prices to maximize profit and meet demand
   • Allocative Efficiency is maximized by consumer desires
     • Consumers wants determine demand
   • Maximized Economic efficiency