Econ1-Fall2010-07A-Efficiency-handout

Econ1-Fall2010-07A-Efficiency-handout - Readings Economics1...

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Economics 1 Principles of Microeconomics 7. Efficiency & Exchange (A) Fall 2010 Herb Newhouse 1 Readings Ch 6: Efficiency and Exchange (p 175 179) Ch. 6: Efficiency and Exchange (p. 175 Market Equilibrium and Efficiency 2 Outline Consumer & Producer Surplus Review Consumer & Producer Surplus Review. Efficiency. h ffi i f h i i k The efficiency of the competitive market equilibrium. 3 Consumer and Producer Surplus To understand efficiency, it’s useful to first understand consumer surplus and producer surplus. Consumer surplus : the difference between the amount that consumers value a good or service d th t th f th t d i and the amount they pay for that good or service. Producer surplus: the difference between the amount that producers are paid for a good or service and the amount the good or service costs them them. 4
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Consumer Surplus P P* Q D 5 Producer Surplus P S P* Q 6 Consumer and Producer Surplus in l b Equilibrium P S P* Q D 7 Efficiency
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