Social Welfare Under Perfect Competition

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Social Welfare Under Perfect Competition

To achieve maximum social welfare the allocation  of resources would be considered efficient if marginal ate of substitution between any two commodities for a consumer is equal to the marginal rate of  transformation between these two commodities for  every producer. This would lead to the equality of  the  ratio of marginal utilities and the ratio of commodity prices for the consumers and the equality  between  he ratio of marginal costs and the ratio of commodity  prices for the producers because the former would   result in maximum satisfaction and the latter ill  maximum profit This results in equality of the ratio or marginal costs because both these ratios Juvenal the ratio of prices under conditions if perfect   compaction.  Tile conditions of perfect competition also bring about the equality between the private   marginal product and social marginal product. The basic condition  for maximum social welfare is that  social marginal util

between  private marginal utility and social marginal utility will depend upon the distribution of money  come in the community. The distribution must be such as would equalize its marginal utilities for all the  consumers. The marginal cost of producing any alternative orotundity would be the same as for the one  hat is being produced. This will lead to equality between private marginal cost with private marginal  utility and hence the social marginal utility and social marginal cost This is how conditions of perfect   competition result in the attainment of maximum social welfare

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Social Welfare Under Perfect Competition