continue your study of economics you will see that the tools of welfare

Continue your study of economics you will see that

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continue your study of economics, you will see that the tools of welfare economics  developed here are readily adapted to that endeavor. Despite the possibility of market failure, the invisible hand of the marketplace is  extraordinarily important. In many markets, the assumptions we made in this chapter  work well, and the conclusion of market efficiency applies directly. Moreover, we can  use our analysis of welfare economics and market efficiency to shed light on the  effects of various government policies. In the next two chapters, we apply the tools we  have just developed to study two important policy issues—the welfare effects of  taxation and of international trade. 7-6a Summary Consumer surplus equals buyers' willingness to pay for a good minus the amount  they actually pay, and it measures the benefit buyers get from participating in a  market. Consumer surplus can be computed by finding the area below the  demand curve and above the price. Producer surplus equals the amount sellers receive for their goods minus their  costs of production, and it measures the benefit sellers get from participating in a  market. Producer surplus can be computed by finding the area below the price  and above the supply curve. An allocation of resources that maximizes the sum of consumer and producer  surplus is said to be efficient. Policymakers are often concerned with the efficiency,  as well as the equality, of economic outcomes. The equilibrium of supply and demand maximizes the sum of consumer and  producer surplus. That is, the invisible hand of the marketplace leads buyers and  sellers to allocate resources efficiently. Markets do not allocate resources efficiently in the presence of market failures  such as market power or externalities. welfare economics the study of how the allocation of resources affects economic well-being willingness to pay the maximum amount that a buyer will pay for a good consumer surplus the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it cost the value of everything a seller must give up to produce a good producer surplus the amount a seller is paid for a good minus the seller's cost of providing it efficiency the property of a resource allocation of maximizing the total surplus received by all members of society equality the property of distributing economic prosperity uniformly among the members of society
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7-6c Questions For Review
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