Consumers, producers, and the efficiency of markets C Chapter 7
Consumers, Producers, and the Efficiency of Markets Chapter 7
Revisiting the market equilibrium Do the equilibrium price and quantity maximize the total welfare of buyers and sellers Market equilibrium reflects the way markets allocate scarce resources Whether the market allocation is desirable is determined by welfare economics
Revisiting the Market Equilibrium Do the equilibrium price and quantity maximize the total welfare of buyers and sellers? • Market equilibrium reflects the way markets allocate scarce resources. • Whether the market allocation is desirable is determined by welfare economics
Welfare economics Welfare economics is the study of how the allocation of resources affects economic well-being Buyers and sellers receive benefits from taking part in the market o The equilibrium in a market maximizes the total welfare of buyers and sellers
Welfare Economics Welfare economics is the study of how the allocation of resources affects economic well-being. • Buyers and sellers receive benefits from taking part in the market. • The equilibrium in a market maximizes the total welfare of buyers and sellers
Welfare economics Equilibrium in the market results in maximum benefits, and therefore maximum total welfare for both the consumers and the producers of the product o Consumer surplus measures economic welfare from the buyer's side o Producer surplus measures economic welfare from the seller's side
Welfare Economics • Equilibrium in the market results in maximum benefits, and therefore maximum total welfare for both the consumers and the producers of the product. • Consumer surplus measures economic welfare from the buyer’s side. • Producer surplus measures economic welfare from the seller’s side
Consumer Surplus Willingness to pay is the maximum price that a buyer is willing and able to pay for a good o It measures how much the buyer values the good or service e Consumer surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
Consumer Surplus • Willingness to pay is the maximum price that a buyer is willing and able to pay for a good. • It measures how much the buyer values the good or service. • Consumer surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it