158PART THREESUPPLY AND DEMAND II: MARKETS AND WELFAREchapter work well, and the conclusion of market efficiency applies directly. More-over, our analysis of welfare economics and market efficiency can be used to shedlight on the effects of various government policies. In the next two chapters we ap-ply the tools we have just developed to study two important policy issues—thewelfare effects of taxation and of international trade.◆Consumer surplus equals buyers’ willingness to pay fora good minus the amount they actually pay for it, and itmeasures the benefit buyers get from participating in amarket. Consumer surplus can be computed by findingthe area below the demand curve and above the price.◆Producer surplus equals the amount sellers receive fortheir goods minus their costs of production, and itmeasures the benefit sellers get from participating in amarket. Producer surplus can be computed by findingthe area below the price and above the supply curve.
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