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welfare - Analysis of Competitive Markets In this section...

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Welfare economics slide 1 Analysis of Competitive Markets Analysis of Competitive Markets In this section, we examine the social welfare implications of competitive markets. The approach taken here (and not the only one possible), is to use the devices of Producer and Consumer Surplus. The social welfare from the production and consumption of a particular amount of a good is assumed to be the sum of the producer and consumer surplus.
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Welfare economics slide 2 Optimality of competitive Optimality of competitive markets markets The principal claim is that social welfare (the sum of producer and consumer surplus) is maximized at the competitive price and quantity for a good. A series of examples are worked to show that a variety of policies and regulations, such as price fixing, taxes, and subsidies, will, in general, reduce social welfare from its maximum.
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Welfare economics slide 3 Key terms Willingness to pay: The maximum amount a buyer will pay for an amount of a good.
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