... environmental factors. Behavioural assumptions can be made depending on people satisfying their own desires in a rational way. Ethical assumptions can be made when the human want adds satisfaction to individual welfare and societal welfare. Environmental assumptions can be made when markets are perfectly competitive and economic agents are being the price takers, and private benefits/costs is the same as social benefits/costs. The diagram below shows the equilibrium in a perfectly competitive market. Figure 1.1 P* and Q* are the market clearing price and output respectively. The price P* is also the value of the utility that was consumed by the last consumer. If the consumer was willing to pay a price P*, the consumer wouldn't be behaving rationally unless the good gave a utility that was greater than equal to the price that ...

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