All Subjects



AP Micro



Unit 6

6.1 Socially Efficient and Inefficient Market Outcomes

2 min readnovember 15, 2020

Jeanne Stansak

AP Microeconomics 💵

Bookmarked 2.4k • 82 resources
See Units

Unit 6: Market Failure and the Role of Government

6.1: Socially Efficient and Inefficient Market Outcomes

Socially efficient market outcomes are the optimal distribution of all resources in society while taking into account all internal and external costs and benefits. In our study of economics, socially efficient takes place where marginal social benefit (MSB) = marginal social cost (MSC).
Marginal Social Benefit (MSB) is the additional benefit received by all members of society due to the consumption of an additional unit of a good or service. This includes both those who directly benefit from consuming the foods, and those who receive spillover benefits, or external benefits experienced by third parties, from consumption.
Marginal Social Cost (MSC) is the additional cost incurred by all members of society due to the consumption of an additional unit of a good or service. This includes both the private cost paid by the producers along with spillover costs, which are external costs faced by third parties.
When you are producing at the quantity and price level where MSB = MSC, you are producing at the socially efficient point. At this point, we maximize all economic surplus. If you choose a quantity on either side of the equilibrium quantity, you are producing an inefficient quantity, and it will result in deadweight loss.
In the graph above, if we were to produce either at a quantity above or below the equilibrium, we would be producing at an inefficient point where we are either underproducing or overproducing the good or service. The government sometimes has to take action or make policies to correct these inefficiencies.

Was this guide helpful?

Fiveable logo
Join Fiveable for free
Create a free account to bookmark content and compete in trivia
Hours Logo
Studying with Hours = the ultimate focus mode
Start a free study session
Browse Study Guides By Unit
📝Exam Skills: FRQ/MCQ
💸Unit 1: Basic Economic Concepts
📈Unit 2: Supply and Demand
⚙️Unit 3: Production, Cost, and the Perfect Competition Model
📊Unit 4: Imperfect Competition
💰Unit 5: Factor Markets
🏛Unit 6: Market Failure and Role of Government
FREE AP micro Survival Pack + Cram Chart PDF
Sign up now for instant access to 2 amazing downloads to help you get a 5