Unformatted text preview: EC 151 Ch: 7 Consumers, Producers, and the efficiency of markets
Consumer surplus Producer surplus Market efficiency Market efficiency & Market Failure Welfare economics Buyers always want to pay less Sellers always want to get paid more Is there a right price from a stand point of society Welfare economics Examine the benefits buyers and sellers receive from the market How the society can make these benefits as large as possible? Consumer surplus Consumer surplus Willingness to pay Consumer surplus = willingness to pay the amt. the buyer actually pays Using the D curve to measure consumer surplus Producer surplus Producer surplus C = Cost Willingness to sell Producer surplus = the amt. a seller is paid for a good the seller's cost Using the S curve to measure producer surplus Market efficiency Consumer surplus & producer surplus are basic tools that economists use to study the welfare of buyers and sellers in a market Total surplus = value to buyers cost to sellers Efficiency equity Evaluating the mkt. equilibrium
1. 2. 3. Free markets allocate the S of goods to buyers who value them most highly, as measured by their willingness to pay Free markets allocate the D for goods to the sellers who can produce them at least cost Free markets produce the Q of goods that maximize the sum of consumer and producer surplus Assumptions:
1. 2. Markets are perfectly competitive The outcome in a market only matters to the buyers and sellers in that market Market failure Examples of market failure ...
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