Whilst rational, self-interested consumers strive to maximise their utility and producers maximise their profits, governments seek to achieve the goals of:
Efficiency
Equity
Society experiences allocative efficiency when the sum total of the society's utility is maximum. This occurs only when a certain combination of goods and services are allocated to people who value them the most is acheived.
Socially optimal level of output occurs when the:
Marginal Social Benefit = Marginal Social Cost
In perfectly competitive markets, and assuming perfect information and absence of externalities,
