{"id":327,"date":"2018-04-05T00:20:54","date_gmt":"2018-04-05T00:20:54","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/os-microecon-e2\/chapter\/efficiency-in-perfectly-competitive-markets\/"},"modified":"2018-06-25T16:38:57","modified_gmt":"2018-06-25T16:38:57","slug":"efficiency-in-perfectly-competitive-markets","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-microeconomics2\/chapter\/efficiency-in-perfectly-competitive-markets\/","title":{"raw":"Efficiency in Perfectly Competitive Markets","rendered":"Efficiency in Perfectly Competitive Markets"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Objectives<\/h3>\r\nBy the end of this section, you will be able to:\r\n<ul>\r\n \t<li>Apply concepts of productive efficiency and allocative efficiency to perfectly competitive markets<\/li>\r\n \t<li>Compare the model of perfect competition to real-world markets<\/li>\r\n<\/ul>\r\n<\/div>\r\n<p id=\"ch08mod04_p01\">When profit-maximizing firms in perfectly competitive markets combine with utility-maximizing consumers, something remarkable happens: the resulting quantities of outputs of goods and services demonstrate both productive and allocative efficiency (terms that we first introduced in (Choice in a World of Scarcity) .<\/p>\r\n<p id=\"ch08mod04_p02\"><span class=\"no-emphasis\">Productive efficiency<\/span> means producing without waste, so that the choice is on the production possibility frontier. In the long run in a perfectly competitive market, because of the process of entry and exit, the price in the market is equal to the minimum of the long-run average cost curve. In other words, firms produce and sell goods at the lowest possible average cost.<\/p>\r\n<p id=\"ch08mod04_p03\">Allocative efficiency means that among the points on the production possibility frontier, the chosen point is socially preferred\u2014at least in a particular and specific sense. In a perfectly competitive market, price will be equal to the marginal cost of production. Think about the price that one pays for a good as a measure of the social benefit one receives for that good; after all, willingness to pay conveys what the good is worth to a buyer. Then think about the marginal cost of producing the good as representing not just the cost for the firm, but more broadly as the social cost of producing that good. When perfectly competitive firms follow the rule that profits are maximized by producing at the quantity where price is equal to marginal cost, they are thus ensuring that the social benefits they receive from producing a good are in line with the social costs of production.<\/p>\r\n<p id=\"ch08mod04_p04\">To explore what economists mean by <span class=\"no-emphasis\">allocative efficiency<\/span>, it is useful to walk through an example. Begin by assuming that the market for wholesale flowers is perfectly competitive, and so P = MC. Now, consider what it would mean if firms in that market produced a lesser quantity of flowers. At a lesser quantity, marginal costs will not yet have increased as much, so that price will exceed marginal cost; that is, P &gt; MC. In that situation, the benefit to society as a whole of producing additional goods, as measured by the willingness of consumers to pay for marginal units of a good, would be higher than the cost of the inputs of labor and physical capital needed to produce the marginal good. In other words, the gains to society as a whole from producing additional marginal units will be greater than the costs.<\/p>\r\n<p id=\"ch08mod04_p05\">Conversely, consider what it would mean if, compared to the level of output at the allocatively efficient choice when P = MC, firms produced a greater quantity of flowers. At a greater quantity, marginal costs of production will have increased so that P &lt; MC. In that case, the marginal costs of producing additional flowers is greater than the benefit to society as measured by what people are willing to pay. For society as a whole, since the costs are outstripping the benefits, it will make sense to produce a lower quantity of such goods.<\/p>\r\n<p id=\"ch08mod04_p06\">When perfectly competitive firms maximize their profits by producing the quantity where P = MC, they also assure that the benefits to consumers of what they are buying, as measured by the price they are willing to pay, is equal to the costs to society of producing the marginal units, as measured by the marginal costs the firm must pay\u2014and thus that allocative efficiency holds.<\/p>\r\n<p id=\"ch08mod04_p07\">We should view the statements that a perfectly competitive market in the long run will feature both productive and allocative efficiency with a degree of skepticism about its truth. Remember, economists are using the concept of \"efficiency\" in a particular and specific sense, not as a synonym for \"desirable in every way.\" For one thing, consumers\u2019 ability to pay reflects the income distribution in a particular society. Thus, a homeless person may have no ability to pay for housing because he or she has insufficient income.<\/p>\r\n<p id=\"ch08mod04_p08\">Perfect competition, in the long run, is a hypothetical benchmark. For market structures such as monopoly, monopolistic competition, and oligopoly, which are more frequently observed in the real world than perfect competition, firms will not always produce at the minimum of average cost, nor will they always set price equal to marginal cost. Thus, these other competitive situations will not produce productive and allocative efficiency.<\/p>\r\n<p id=\"ch08mod04_p09\">Moreover, real-world markets include many issues that are assumed away in the model of perfect competition, including pollution, inventions of new technology, poverty which may make some people unable to pay for basic necessities of life, government programs like national defense or education, discrimination in labor markets, and buyers and sellers who must deal with imperfect and unclear information. We explore these issues in other chapters. However, the theoretical efficiency of perfect competition does provide a useful benchmark for comparing the issues that arise from these real-world problems.<\/p>\r\n\r\n<div id=\"ch08mod04_bringhome01\" class=\"economics bringhome\">\r\n<div>\r\n<div class=\"textbox shaded\">\r\n<h3>Bring it home<\/h3>\r\n<h4>A Dime a Dozen<\/h4>\r\n<p id=\"ch08mod04_p10\">A quick glance at <a class=\"autogenerated-content\" href=\"#ch08mod04_tab01\">[link]<\/a> reveals the dramatic increase in North Dakota corn production\u2014more than double. Taking into consideration that corn typically yields two to three times as many bushels per acre as wheat, it is obvious there has been a significant increase in bushels of corn. Why the increase in corn acreage? Converging prices.<\/p>\r\n\r\n<table id=\"ch08mod04_tab01\" summary=\"This table has three columns and one row. The first row is a header row and it labels each column, 'Year,' 'Corn (millions of acres),' and 'Wheat (millions of acres).' Under the \"><caption>(Source: USDA National Agricultural Statistics Service)<\/caption>\r\n<thead>\r\n<tr>\r\n<th>Year<\/th>\r\n<th>Corn (millions of acres)<\/th>\r\n<th>Wheat (millions of acres)<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>2014<\/td>\r\n<td>91.6<\/td>\r\n<td>56.82<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p id=\"ch08mod04_p11\">Historically, wheat prices have been higher than corn prices, offsetting wheat\u2019s lower yield per acre. However, in recent years wheat and corn prices have been converging. In April 2013, <em>Agweek<\/em> reported the gap was just 71 cents per bushel. As the difference in price narrowed, switching to the production of higher yield per acre of corn simply made good business sense. Erik Younggren, president of the National Association of Wheat Growers said in the <em>Agweek<\/em> article, \"I don't think we're going to see mile after mile of waving amber fields [of wheat] anymore.\" (Until wheat prices rise, we will probably be seeing field after field of tasseled corn.)<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<section id=\"ch08mod04_summ\" class=\"summary\">\r\n<div class=\"textbox key-takeaways\">\r\n<h3>Key Concepts and Summary<\/h3>\r\n<p id=\"ch08mod04_p12\">Long-run equilibrium in perfectly competitive markets meets two important conditions: allocative efficiency and productive efficiency. These two conditions have important implications. First, resources are allocated to their best alternative use. Second, they provide the maximum satisfaction attainable by society.<\/p>\r\n\r\n<\/div>\r\n<\/section><section id=\"ch08mod04_sques\" class=\"self-check-questions\">\r\n<div class=\"textbox exercises\"><section id=\"ch08mod04_sques\" class=\"self-check-questions\">\r\n<h3>Self-Check Questions<\/h3>\r\n<div id=\"ch08mod04_sques01\">\r\n<div id=\"ch08mod04_sques01p\">\r\n<p id=\"ch08mod04_p13\">Productive efficiency and allocative efficiency are two concepts achieved in the long run in a perfectly competitive market. These are the two reasons why we call them \"perfect.\" How would you use these two concepts to analyze other market structures and label them \"imperfect?\"<\/p>\r\n\r\n[reveal-answer q=\"91817\"]Show Answer[\/reveal-answer]\r\n[hidden-answer a=\"91817\"]\r\n<div id=\"ch08mod04_sques01\">\r\n<div id=\"ch08mod03_sques01s\">\r\n<p id=\"ch08mod04_p14\">Perfect competition is considered to be \"perfect\" because both allocative and productive efficiency are met at the same time in a long-run equilibrium. If a market structure results in long-run equilibrium that does not minimize average total costs and\/or does not charge a price equal to marginal cost, then either allocative or productive (or both) efficiencies are not met, and therefore the market cannot be labeled \"perfect.\"<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n[\/hidden-answer]\r\n\r\n<\/div>\r\n<div id=\"ch08mod03_sques01s\"><\/div>\r\n<\/div>\r\n<div id=\"ch08mod04_sques02\">\r\n<div id=\"ch08mod04_sques02p\">\r\n<p id=\"ch08mod04_p15\">Explain how the profit-maximizing rule of setting P = MC leads a perfectly competitive market to be allocatively efficient.<\/p>\r\n\r\n[reveal-answer q=\"416898\"]Show Answer[\/reveal-answer]\r\n[hidden-answer a=\"416898\"]\r\n\r\n<section id=\"ch08mod04_sques\" class=\"self-check-questions\">\r\n<div id=\"ch08mod04_sques02\">\r\n<div id=\"ch08mod04_sques03s\">\r\n<p id=\"ch08mod04_p16\">Think of the market price as representing the gain to society from a purchase, since it represents what someone is willing to pay. Think of the marginal cost as representing the cost to society from making the last unit of a good. If P &gt; MC, then the benefits from producing more of a good exceed the costs, and society would gain from producing more of the good. If P &lt; MC, then the social costs of producing the marginal good exceed the social benefits, and society should produce less of the good. Only if P = MC, the rule applied by a profit-maximizing perfectly competitive firm, will society\u2019s costs and benefits be in balance. This choice will be the option that brings the greatest overall benefit to society.<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<\/section>[\/hidden-answer]\r\n\r\n<\/div>\r\n<div id=\"ch08mod04_sques03s\"><\/div>\r\n<\/div>\r\n<\/section><section id=\"ch08mod04_rques\" class=\"review-questions\">\r\n<h3>Review Questions<\/h3>\r\n<div id=\"ch08mod04_rques01\">\r\n<div id=\"ch08mod04_rques01p\">\r\n<p id=\"ch08mod04_p17\">Will a perfectly competitive market display productive efficiency? Why or why not?<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<div id=\"ch08mod04_rques02\">\r\n<div id=\"ch08mod04_rques02p\">\r\n<p id=\"ch08mod04_p18\">Will a perfectly competitive market display allocative efficiency? Why or why not?<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<\/section><section id=\"ch08mod04_ctques\" class=\"critical-thinking\">\r\n<h3>Critical Thinking Questions<\/h3>\r\n<div id=\"ch08mod04_ctques01\">\r\n<div id=\"ch08mod04_ctques01p\">\r\n<p id=\"ch08mod04_p19\">Assuming that the market for cigarettes is in perfect competition, what does allocative and productive efficiency imply in this case? What does it not imply?<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<div id=\"ch08mod04_ctques02\">\r\n<div id=\"ch08mod04_ctques02p\">\r\n<p id=\"ch08mod04_p20\">In the argument for why perfect competition is allocatively efficient, the price that people are willing to pay represents the gains to society and the marginal cost to the firm represents the costs to society. Can you think of some social costs or issues that are not included in the marginal cost to the firm? Or some social gains that are not included in what people pay for a good?<span style=\"background-color: #ccd7dd;color: #000000;font-size: 1.2em;font-weight: 600;text-align: center\">\u00a0<\/span><\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<\/section><\/div>\r\n&nbsp;\r\n<h3>References<\/h3>\r\n<\/section><section id=\"ch08mod04_ref\" class=\"references\">\r\n<p id=\"eip-957\">Index Mundi. n.d. \"Wheat Monthly Price\u2014U.S. Dollars per Metric Ton.\" Accessed March 11, 2015. http:\/\/www.indexmundi.com\/commodities\/?commodity=wheat.<\/p>\r\n<p id=\"ch08mod04_ref01\">Knutson, J. \"Wheat on the Defensive in the Northern Plains.\" <em>Agweek, Associated Press State Wire: North Dakota (ND)<\/em>. April 14, 2013.<\/p>\r\n<p id=\"eip-663\">SBA Office of Advocacy. 2014. \"Frequently Asked Questions: Advocacy: the voice of small business in government.\" Accessed March 11, 2015. https:\/\/www.sba.gov\/sites\/default\/files\/advocacy\/FAQ_March_2014_0.pdf.<\/p>\r\n\r\n<\/section>&nbsp;","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Objectives<\/h3>\n<p>By the end of this section, you will be able to:<\/p>\n<ul>\n<li>Apply concepts of productive efficiency and allocative efficiency to perfectly competitive markets<\/li>\n<li>Compare the model of perfect competition to real-world markets<\/li>\n<\/ul>\n<\/div>\n<p id=\"ch08mod04_p01\">When profit-maximizing firms in perfectly competitive markets combine with utility-maximizing consumers, something remarkable happens: the resulting quantities of outputs of goods and services demonstrate both productive and allocative efficiency (terms that we first introduced in (Choice in a World of Scarcity) .<\/p>\n<p id=\"ch08mod04_p02\"><span class=\"no-emphasis\">Productive efficiency<\/span> means producing without waste, so that the choice is on the production possibility frontier. In the long run in a perfectly competitive market, because of the process of entry and exit, the price in the market is equal to the minimum of the long-run average cost curve. In other words, firms produce and sell goods at the lowest possible average cost.<\/p>\n<p id=\"ch08mod04_p03\">Allocative efficiency means that among the points on the production possibility frontier, the chosen point is socially preferred\u2014at least in a particular and specific sense. In a perfectly competitive market, price will be equal to the marginal cost of production. Think about the price that one pays for a good as a measure of the social benefit one receives for that good; after all, willingness to pay conveys what the good is worth to a buyer. Then think about the marginal cost of producing the good as representing not just the cost for the firm, but more broadly as the social cost of producing that good. When perfectly competitive firms follow the rule that profits are maximized by producing at the quantity where price is equal to marginal cost, they are thus ensuring that the social benefits they receive from producing a good are in line with the social costs of production.<\/p>\n<p id=\"ch08mod04_p04\">To explore what economists mean by <span class=\"no-emphasis\">allocative efficiency<\/span>, it is useful to walk through an example. Begin by assuming that the market for wholesale flowers is perfectly competitive, and so P = MC. Now, consider what it would mean if firms in that market produced a lesser quantity of flowers. At a lesser quantity, marginal costs will not yet have increased as much, so that price will exceed marginal cost; that is, P &gt; MC. In that situation, the benefit to society as a whole of producing additional goods, as measured by the willingness of consumers to pay for marginal units of a good, would be higher than the cost of the inputs of labor and physical capital needed to produce the marginal good. In other words, the gains to society as a whole from producing additional marginal units will be greater than the costs.<\/p>\n<p id=\"ch08mod04_p05\">Conversely, consider what it would mean if, compared to the level of output at the allocatively efficient choice when P = MC, firms produced a greater quantity of flowers. At a greater quantity, marginal costs of production will have increased so that P &lt; MC. In that case, the marginal costs of producing additional flowers is greater than the benefit to society as measured by what people are willing to pay. For society as a whole, since the costs are outstripping the benefits, it will make sense to produce a lower quantity of such goods.<\/p>\n<p id=\"ch08mod04_p06\">When perfectly competitive firms maximize their profits by producing the quantity where P = MC, they also assure that the benefits to consumers of what they are buying, as measured by the price they are willing to pay, is equal to the costs to society of producing the marginal units, as measured by the marginal costs the firm must pay\u2014and thus that allocative efficiency holds.<\/p>\n<p id=\"ch08mod04_p07\">We should view the statements that a perfectly competitive market in the long run will feature both productive and allocative efficiency with a degree of skepticism about its truth. Remember, economists are using the concept of &#8220;efficiency&#8221; in a particular and specific sense, not as a synonym for &#8220;desirable in every way.&#8221; For one thing, consumers\u2019 ability to pay reflects the income distribution in a particular society. Thus, a homeless person may have no ability to pay for housing because he or she has insufficient income.<\/p>\n<p id=\"ch08mod04_p08\">Perfect competition, in the long run, is a hypothetical benchmark. For market structures such as monopoly, monopolistic competition, and oligopoly, which are more frequently observed in the real world than perfect competition, firms will not always produce at the minimum of average cost, nor will they always set price equal to marginal cost. Thus, these other competitive situations will not produce productive and allocative efficiency.<\/p>\n<p id=\"ch08mod04_p09\">Moreover, real-world markets include many issues that are assumed away in the model of perfect competition, including pollution, inventions of new technology, poverty which may make some people unable to pay for basic necessities of life, government programs like national defense or education, discrimination in labor markets, and buyers and sellers who must deal with imperfect and unclear information. We explore these issues in other chapters. However, the theoretical efficiency of perfect competition does provide a useful benchmark for comparing the issues that arise from these real-world problems.<\/p>\n<div id=\"ch08mod04_bringhome01\" class=\"economics bringhome\">\n<div>\n<div class=\"textbox shaded\">\n<h3>Bring it home<\/h3>\n<h4>A Dime a Dozen<\/h4>\n<p id=\"ch08mod04_p10\">A quick glance at <a class=\"autogenerated-content\" href=\"#ch08mod04_tab01\">[link]<\/a> reveals the dramatic increase in North Dakota corn production\u2014more than double. Taking into consideration that corn typically yields two to three times as many bushels per acre as wheat, it is obvious there has been a significant increase in bushels of corn. Why the increase in corn acreage? Converging prices.<\/p>\n<table id=\"ch08mod04_tab01\" summary=\"This table has three columns and one row. The first row is a header row and it labels each column, 'Year,' 'Corn (millions of acres),' and 'Wheat (millions of acres).' Under the\">\n<caption>(Source: USDA National Agricultural Statistics Service)<\/caption>\n<thead>\n<tr>\n<th>Year<\/th>\n<th>Corn (millions of acres)<\/th>\n<th>Wheat (millions of acres)<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>2014<\/td>\n<td>91.6<\/td>\n<td>56.82<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p id=\"ch08mod04_p11\">Historically, wheat prices have been higher than corn prices, offsetting wheat\u2019s lower yield per acre. However, in recent years wheat and corn prices have been converging. In April 2013, <em>Agweek<\/em> reported the gap was just 71 cents per bushel. As the difference in price narrowed, switching to the production of higher yield per acre of corn simply made good business sense. Erik Younggren, president of the National Association of Wheat Growers said in the <em>Agweek<\/em> article, &#8220;I don&#8217;t think we&#8217;re going to see mile after mile of waving amber fields [of wheat] anymore.&#8221; (Until wheat prices rise, we will probably be seeing field after field of tasseled corn.)<\/p>\n<\/div>\n<\/div>\n<\/div>\n<section id=\"ch08mod04_summ\" class=\"summary\">\n<div class=\"textbox key-takeaways\">\n<h3>Key Concepts and Summary<\/h3>\n<p id=\"ch08mod04_p12\">Long-run equilibrium in perfectly competitive markets meets two important conditions: allocative efficiency and productive efficiency. These two conditions have important implications. First, resources are allocated to their best alternative use. Second, they provide the maximum satisfaction attainable by society.<\/p>\n<\/div>\n<\/section>\n<section id=\"ch08mod04_sques\" class=\"self-check-questions\">\n<div class=\"textbox exercises\">\n<section id=\"ch08mod04_sques\" class=\"self-check-questions\">\n<h3>Self-Check Questions<\/h3>\n<div id=\"ch08mod04_sques01\">\n<div id=\"ch08mod04_sques01p\">\n<p id=\"ch08mod04_p13\">Productive efficiency and allocative efficiency are two concepts achieved in the long run in a perfectly competitive market. These are the two reasons why we call them &#8220;perfect.&#8221; How would you use these two concepts to analyze other market structures and label them &#8220;imperfect?&#8221;<\/p>\n<div class=\"qa-wrapper\" style=\"display: block\"><span class=\"show-answer collapsed\" style=\"cursor: pointer\" data-target=\"q91817\">Show Answer<\/span><\/p>\n<div id=\"q91817\" class=\"hidden-answer\" style=\"display: none\">\n<div id=\"ch08mod04_sques01\">\n<div id=\"ch08mod03_sques01s\">\n<p id=\"ch08mod04_p14\">Perfect competition is considered to be &#8220;perfect&#8221; because both allocative and productive efficiency are met at the same time in a long-run equilibrium. If a market structure results in long-run equilibrium that does not minimize average total costs and\/or does not charge a price equal to marginal cost, then either allocative or productive (or both) efficiencies are not met, and therefore the market cannot be labeled &#8220;perfect.&#8221;<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<div id=\"ch08mod03_sques01s\"><\/div>\n<\/div>\n<div id=\"ch08mod04_sques02\">\n<div id=\"ch08mod04_sques02p\">\n<p id=\"ch08mod04_p15\">Explain how the profit-maximizing rule of setting P = MC leads a perfectly competitive market to be allocatively efficient.<\/p>\n<div class=\"qa-wrapper\" style=\"display: block\"><span class=\"show-answer collapsed\" style=\"cursor: pointer\" data-target=\"q416898\">Show Answer<\/span><\/p>\n<div id=\"q416898\" class=\"hidden-answer\" style=\"display: none\">\n<section id=\"ch08mod04_sques\" class=\"self-check-questions\">\n<div id=\"ch08mod04_sques02\">\n<div id=\"ch08mod04_sques03s\">\n<p id=\"ch08mod04_p16\">Think of the market price as representing the gain to society from a purchase, since it represents what someone is willing to pay. Think of the marginal cost as representing the cost to society from making the last unit of a good. If P &gt; MC, then the benefits from producing more of a good exceed the costs, and society would gain from producing more of the good. If P &lt; MC, then the social costs of producing the marginal good exceed the social benefits, and society should produce less of the good. Only if P = MC, the rule applied by a profit-maximizing perfectly competitive firm, will society\u2019s costs and benefits be in balance. This choice will be the option that brings the greatest overall benefit to society.<\/p>\n<\/div>\n<\/div>\n<\/section>\n<\/div>\n<\/div>\n<\/div>\n<div id=\"ch08mod04_sques03s\"><\/div>\n<\/div>\n<\/section>\n<section id=\"ch08mod04_rques\" class=\"review-questions\">\n<h3>Review Questions<\/h3>\n<div id=\"ch08mod04_rques01\">\n<div id=\"ch08mod04_rques01p\">\n<p id=\"ch08mod04_p17\">Will a perfectly competitive market display productive efficiency? Why or why not?<\/p>\n<\/div>\n<\/div>\n<div id=\"ch08mod04_rques02\">\n<div id=\"ch08mod04_rques02p\">\n<p id=\"ch08mod04_p18\">Will a perfectly competitive market display allocative efficiency? Why or why not?<\/p>\n<\/div>\n<\/div>\n<\/section>\n<section id=\"ch08mod04_ctques\" class=\"critical-thinking\">\n<h3>Critical Thinking Questions<\/h3>\n<div id=\"ch08mod04_ctques01\">\n<div id=\"ch08mod04_ctques01p\">\n<p id=\"ch08mod04_p19\">Assuming that the market for cigarettes is in perfect competition, what does allocative and productive efficiency imply in this case? What does it not imply?<\/p>\n<\/div>\n<\/div>\n<div id=\"ch08mod04_ctques02\">\n<div id=\"ch08mod04_ctques02p\">\n<p id=\"ch08mod04_p20\">In the argument for why perfect competition is allocatively efficient, the price that people are willing to pay represents the gains to society and the marginal cost to the firm represents the costs to society. Can you think of some social costs or issues that are not included in the marginal cost to the firm? Or some social gains that are not included in what people pay for a good?<span style=\"background-color: #ccd7dd;color: #000000;font-size: 1.2em;font-weight: 600;text-align: center\">\u00a0<\/span><\/p>\n<\/div>\n<\/div>\n<\/section>\n<\/div>\n<p>&nbsp;<\/p>\n<h3>References<\/h3>\n<\/section>\n<section id=\"ch08mod04_ref\" class=\"references\">\n<p id=\"eip-957\">Index Mundi. n.d. &#8220;Wheat Monthly Price\u2014U.S. Dollars per Metric Ton.&#8221; Accessed March 11, 2015. http:\/\/www.indexmundi.com\/commodities\/?commodity=wheat.<\/p>\n<p id=\"ch08mod04_ref01\">Knutson, J. &#8220;Wheat on the Defensive in the Northern Plains.&#8221; <em>Agweek, Associated Press State Wire: North Dakota (ND)<\/em>. April 14, 2013.<\/p>\n<p id=\"eip-663\">SBA Office of Advocacy. 2014. &#8220;Frequently Asked Questions: Advocacy: the voice of small business in government.&#8221; Accessed March 11, 2015. https:\/\/www.sba.gov\/sites\/default\/files\/advocacy\/FAQ_March_2014_0.pdf.<\/p>\n<\/section>\n<p>&nbsp;<\/p>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-327\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Specific attribution<\/div><ul class=\"citation-list\"><li>Principles of Microeconomics, 2nd Edition. <strong>Authored by<\/strong>: OpenStax. <strong>Provided by<\/strong>: Rice University. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"http:\/\/cnx.org\/contents\/5c09762c-b540-47d3-9541-dda1f44f16e5@8.1.\">http:\/\/cnx.org\/contents\/5c09762c-b540-47d3-9541-dda1f44f16e5@8.1.<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em>. <strong>License Terms<\/strong>: Download for free at http:\/\/cnx.org\/contents\/5c09762c-b540-47d3-9541-dda1f44f16e5@8.1.<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":2,"menu_order":5,"template":"","meta":{"_candela_citation":"[{\"type\":\"cc-attribution\",\"description\":\"Principles of Microeconomics, 2nd Edition\",\"author\":\"OpenStax\",\"organization\":\"Rice University\",\"url\":\"http:\/\/cnx.org\/contents\/5c09762c-b540-47d3-9541-dda1f44f16e5@8.1.\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"Download for free at http:\/\/cnx.org\/contents\/5c09762c-b540-47d3-9541-dda1f44f16e5@8.1.\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-327","chapter","type-chapter","status-publish","hentry"],"part":312,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/suny-microeconomics2\/wp-json\/pressbooks\/v2\/chapters\/327","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/suny-microeconomics2\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/suny-microeconomics2\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-microeconomics2\/wp-json\/wp\/v2\/users\/2"}],"version-history":[{"count":4,"href":"https:\/\/courses.lumenlearning.com\/suny-microeconomics2\/wp-json\/pressbooks\/v2\/chapters\/327\/revisions"}],"predecessor-version":[{"id":912,"href":"https:\/\/courses.lumenlearning.com\/suny-microeconomics2\/wp-json\/pressbooks\/v2\/chapters\/327\/revisions\/912"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/suny-microeconomics2\/wp-json\/pressbooks\/v2\/parts\/312"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/suny-microeconomics2\/wp-json\/pressbooks\/v2\/chapters\/327\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/suny-microeconomics2\/wp-json\/wp\/v2\/media?parent=327"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-microeconomics2\/wp-json\/pressbooks\/v2\/chapter-type?post=327"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-microeconomics2\/wp-json\/wp\/v2\/contributor?post=327"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-microeconomics2\/wp-json\/wp\/v2\/license?post=327"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}