Chapter 7Efficiency and Exchange
Chapter 7 Efficiency and Exchange
EfficiencyPareto Efficiency No change is possible that will help somepeople without harming others- It is not possible to make some peoplebetter-off without harming othersInefficiency:- It is possible to help somepeople withoutharming others
Efficiency ◼ Pareto Efficiency – No change is possible that will help some people without harming others – It is not possible to make some people better-off without harming others ◼ Inefficiency: – It is possible to help some people without harming others
A market equilibrium is efficientif price and quantity take any otherthan values different from the values inequilibrium, some people can bebetter- off by having more or lesstransactions without harming othersIf away from equilibrium, some peoplecan be better-off without harmingothers by moving toward equilibrium
A market equilibrium is efficient ◼ if price and quantity take any other than values different from the values in equilibrium, some people can be better- off by having more or less transactions without harming others ◼ If away from equilibrium, some people can be better-off without harming others by moving toward equilibrium
Recall: Consumer Surplusthe net gain to an individual buyerfrom the purchase of a good.the difference between the buyer'swillingness to pay and the price paid
Recall: Consumer Surplus ◼ the net gain to an individual buyer from the purchase of a good. ◼ the difference between the buyer’s willingness to pay and the price paid
Consumer SurplusPriceofcomputerConsumersurplusPrice=$1,500$1,500D01millionQuantityofcomputersThe total consumer surplus generated by purchases of a good at agiven price is equal to the area below the demand curvebutabovethatprice
The total consumer surplus generated by purchases of a good at a given price is equal to the area below the demand curve but above that price. Consumer Surplus