Principles of Economics- Mankiw (5th) 146

Principles of - 152 PA R T T H R E E S U P P LY A N D D E M A N D I I M A R K E T S A N D W E L FA R E As this analysis shows we use producer

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152 PART THREE SUPPLY AND DEMAND II: MARKETS AND WELFARE As this analysis shows, we use producer surplus to measure the well-being of sellers in much the same way as we use consumer surplus to measure the well- being of buyers. Because these two measures of economic welfare are so similar, it is natural to use them together. And, indeed, that is exactly what we do in the next section. QUICK QUIZ: Draw a supply curve for turkey. In your diagram, show a price of turkey and the producer surplus that results from that price. Explain in words what this producer surplus measures. MARKET EFFICIENCY Consumer surplus and producer surplus are the basic tools that economists use to study the welfare of buyers and sellers in a market. These tools can help us address a fundamental economic question: Is the allocation of resources determined by free markets in any way desirable? THE BENEVOLENT SOCIAL PLANNER To evaluate market outcomes, we introduce into our analysis a new, hypothetical character, called the benevolent social planner. The benevolent social planner is an
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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