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Author Question: What are the three basic decisions that any household must make. What will be an ideal ... (Read 49 times)

jwb375

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on: Jun 29, 2018
What are the three basic decisions that any household must make.
 
  What will be an ideal response?

Question 2

Even though a perfect price discriminator can extract all of the consumer surplus, how can it be efficient?
 
  What will be an ideal response?


bassamabas

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Reply #1 on: Jun 29, 2018
Answer to Question 1

Every household must make three basic decisions: (1) how much of each product, or output, todemand; (2) how much labor to supply; and (3) how much to spend today and how much tosave for the future.

Answer to Question 2

Efficiency has nothing to do with who gets the surpluses; that is, efficiency has nothing to do with whether the consumer surplus (or producer surplus) is large or small. Instead, a market is efficient as long as there is no deadweight loss. Because there is no deadweight loss with perfect price discrimination, even though the amount of consumer surplus is as small as possiblezeroand the producer surplus is as large as possible, nonetheless the market is efficient.


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