This preview shows page 1. Sign up to view the full content.
Unformatted text preview: AND MARKET FAILURE This chapter introduced the basic tools of welfare economicsconsumer and pro-ducer surplusand used them to evaluate the efficiency of free markets. We showed that the forces of supply and demand allocate resources efficiently. That is, Quantity Price Equilibrium quantity Supply Demand Cost to sellers Cost to sellers Value to buyers Value to buyers Value to buyers is greater than cost to sellers. Value to buyers is less than cost to sellers. Figure 7-8 T HE E FFICIENCY OF THE E QUILIBRIUM Q UANTITY . At quantities less than the equi-librium quantity, the value to buyers exceeds the cost to sellers. At quantities greater than the equilibrium quantity, the cost to sellers exceeds the value to buyers. Therefore, the market equilibrium maximizes the sum of producer and consumer surplus....
View Full Document
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.
- Spring '10