Refer to the figure below (assume the intercept is at (0,0) and (0,20)), suppose the government imposed a binding price ceiling on the market price. Which price would be the binding price ceiling? What would be the quantity produced and the consumers' willingness to pay at that quantity available? I price 20 18 16 14 12 10 10 20 30 40 50 60 70 N0 quantity

Q: None

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Market Failure Analysis

To understand Market failure, we need to first understand welfare economics. An Italian economist, Vilfredo Pareto stated that allocation of resources in an efficient manner such that an economic change, which harms no one and makes someone better off, indicates an increase in social welfare. It is also called Pareto Optimality, where resources cannot further be reallocated without harming one. This does not apply to those economic changes, which harm some and benefit others. social welfare increases if the utility of any of its members' increases and none decrease in the economy.