WhatConsumerandProducerSurplusMeasureConsumer surplusmeasuresthe net benefitto consumersfromparticipating in a market rather than the total benefit.Consumer surplus in a market is equal to the total benefit received byconsumers minus the total amount they must pay to buy the good orservice.Similarly,producer surplus measures the net benefit received byproducers from participating in a market.Producersurplus in a market is equal to the total amount firmsreceive from consumers minus the cost of producing the good orservice.16@2015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 16 What Consumer and Producer Surplus Measure Consumer surplus measures the net benefit to consumers from participating in a market rather than the total benefit. Consumer surplus in a market is equal to the total benefit received by consumers minus the total amount they must pay to buy the good or service. Similarly, producer surplus measures the net benefit received by producers from participating in a market. Producer surplus in a market is equal to the total amount firms receive from consumers minus the cost of producing the good or service
TheEfficiencyofCompetitiveMarkets4.2LEARNINGOBJECTIVEUnderstandtheconceptof economicefficiency@2015PearsonEducation,lnc17
LEARNING OBJECTIVE © 2015 Pearson Education, Inc. 17 The Efficiency of Competitive Markets 4.2 Understand the concept of economic efficiency
HowMuchOutputis Efficient?We can think about efficiency in a market in two ways:1. A market is efficient if all trades take place where the marginalbenefit exceeds the marginal cost, and no other trades takeplace.2. A market is efficient if it maximizes the sum of consumer andproducer surplus (i.e.the total net benefit to consumers andfirms), known as the economic surplusEconomic efficiency: A market outcome in which the marginalbenefit to consumers of the last unit produced is equal to its marginalcostof productionand inwhichthe sum of consumer andproducersurplus is at a maximum.182015PearsonEducation,Inc
© 2015 Pearson Education, Inc. 18 How Much Output is Efficient? We can think about efficiency in a market in two ways: 1. A market is efficient if all trades take place where the marginal benefit exceeds the marginal cost, and no other trades take place. 2. A market is efficient if it maximizes the sum of consumer and producer surplus (i.e. the total net benefit to consumers and firms), known as the economic surplus. Economic efficiency: A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer and producer surplus is at a maximum