If consumer tastes are quasilinear -- and ignoring the possibility of corner solutions and violations of the conditions of the first welfare theorem, the competitive market production level of the quasilinear good will be the same as that chosen by a social planner whose goal includes (but is not necessarily limited to) efficiency.

Question

Quizplus · Accepted Answer

In a competitive market, the price of a quasilinear good will be equal to the marginal cost of production, which is the same as the marginal social cost. Therefore, the market equilibriums where marginal cost equals price will also satisfy the condition for efficient allocation where marginal cost equals marginal social cost. Thus, the competitive market production level will be the same as that chosen by a social planner who aims for efficiency. This assumes no corner solutions or violations of the conditions of the first welfare theorem.

If Consumer Tastes Are Quasilinear -- and Ignoring the Possibility