Unformatted text preview: this region, increasing the quantity raises total surplus, and it continues to do so until the quantity reaches the equilibrium level. Beyond the equilibrium quantity, however, the value to buyers is less than the cost to sellers. Producing more than the equilibrium quantity would, therefore, lower total surplus. These three insights about market outcomes tell us that the equilibrium of sup-ply and demand maximizes the sum of consumer and producer surplus. In other words, the equilibrium outcome is an efficient allocation of resources. The job of the benevolent social planner is, therefore, very easy: He can leave the market Price Equilibrium price Quantity Equilibrium quantity A Supply C B Demand D Producer surplus Consumer surplus E Figure 7-7 C ONSUMER AND P RODUCER S URPLUS IN THE M ARKET E QUILIBRIUM . Total surplus— the sum of consumer and producer surplus—is the area between the supply and demand curves up to the equilibrium quantity....
View Full Document
- Spring '10
- Supply And Demand, producer, Equilibrium quantity Quantity