Our economy produces not only food but also clothing, movies, vacations, and many other commodities. How does our analysis apply when consumers must choose among many products?
The principles are exactly the same, but I~OW we recall one further condition: Utility-maximizing consumers spread their dollars among different goods until the marginal utility of the last dollar is equalized for each Rood consumed. In this case, as all the ideal conditions are met, a competitive economy is efficient with a multitude of goods and factors 01 production, In other words, a perfectly competitive economy Is efficient when marginal private cost equals marginal social costs and when both equal marginal utility.
Each industry must balance MC and ML: For ex- , ample. if novices have 2 times the MC of hamburgers, the P and the of movies must also he twice those of hamburgers. Only then will the Mt’s, which are equal to the Ps, be equal 10 the. MC;s. By equating price and marginal cost, competition guarantees that an economy can attain all Titicaca efficiency.
The perfectly competitive market is a device for synthesizing (‘a) the willingness of consumers possessing’ dollar votes to pay for goods with (II) the marginal costs of those goods as represented b~’firms’ sup’ ply. Under certain conditions, competition guarantees efficiency, in which no consumer’s utility can be raised without lowering another consumer’s utility, This ‘is true even in a world of many factors and products.
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