1、,Consumers, Producers, and the Efficiency of Markets,Chapter 7,Copyright 2001 by Harcourt, Inc.All rights reserved. Requests for permission to make copies of any part of thework should be mailed to:Permissions Department, Harcourt College Publishers,6277 Sea Harbor Drive, Orlando, Florida 32887-6777
2、.,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 e
3、conomics 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 benef
4、its, and therefore maximum total welfare for both the consumers and the producers of the product.,Welfare Economics,Consumer surplus measures economic welfare from the buyers side.Producer surplus measures economic welfare from the sellers side.,Consumer Surplus,Willingness to pay is the maximum pri
5、ce 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,Consumer surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.,Four Possible Buyers Willingness to Pay.,Consumer Sur
6、plus,The market demand curve depicts the various quantities that buyers would be willing and able to purchase at different prices.,Four Possible Buyers Willingness to Pay.,Measuring Consumer Surplus with the Demand Curve.,Price ofAlbum,50,70,80,0,$100,1,2,3,4,Quantity ofAlbums,Measuring Consumer Sur
7、plus with the Demand Curve.,Price ofAlbum,50,70,80,0,$100,1,2,3,4,Quantity ofAlbums,Demand,Price = $80,Measuring Consumer Surplus with the Demand Curve.,Price ofAlbum,50,70,80,0,$100,1,2,3,4,Quantity ofAlbums,Demand,Price = $70,Measuring Consumer Surplus with the Demand Curve,The area below the dema
8、nd curve and above the price measures the consumer surplus in the market.,How the Price Affects Consumer Surplus.,Quantity,Price,0,Demand,Copyright 2001 by Harcourt, Inc. All rights reserved,Initialconsumersurplus,Consumer Surplus and Economic Well-Being,Consumer surplus, the amount that buyers are
9、willing to pay for a good minus the amount they actually pay for it, measures the benefit that buyers receive from a good as the buyers themselves perceive it.,Producer Surplus,Producer surplus is the amount a seller is paid minus the cost of production. It measures the benefit to sellers participat
10、ing in a market.,The Costs of Four Possible Sellers.,Producer Surplus and the Supply Curve,Just as consumer surplus is related to the demand curve, producer surplus is closely related to the supply curve.At any quantity, the price given by the supply curve shows the cost of the marginal seller, the
11、seller who would leave the market first if the price were any lower.,Supply Schedule for the Four Possible Sellers.,Producer Surplus and the Supply Curve.,Quantity ofHouses Painted,Price ofHousePainting,500,800,$900,0,600,1,2,3,4,Supply,The area below the price and above the supply curve measures th
12、e producer surplus in a market.,Producer Surplus and the Supply Curve,Measuring Producer Surplus with the Supply Curve.,Quantity ofHouses Painted,Price ofHousePainting,500,800,$900,0,600,1,2,3,4,Supply,Price = $600,Measuring Producer Surplus with the Supply Curve.,Quantity ofHouses Painted,Price ofH
13、ousePainting,500,800,$900,0,600,1,2,3,4,Supply,Price = $800,How Price Affects Producer Surplus.,Quantity,Price,0,Supply,Initial Producersurplus,Market Efficiency,Consumer surplus and producer surplus may be used to address the following question:Is the allocation of resources determined by free mark
14、ets in any way desirable?,Economic Well-Being and Total Surplus,and,Economic Well-Being and Total Surplus,or,Market Efficiency,Market efficiency is achieved when the allocation of resources maximizes total surplus.,Market Efficiency,In addition to market efficiency, a social planner might also care
15、about equity the fairness of the distribution of well-being among the various buyers and sellers.,Evaluating the Market Equilibrium.,Price,Equilibriumprice,0,Quantity,Equilibriumquantity,A,Supply,C,B,Demand,D,E,Consumer and Producer Surplus in the Market Equilibrium.,Price,Equilibriumprice,0,Quantit
16、y,Equilibriumquantity,A,Supply,C,B,Demand,D,E,Producersurplus,Consumersurplus,Three Insights Concerning Market Outcomes,Free markets allocate the supply of goods to the buyers who value them most highly.Free markets allocate the demand for goods to the sellers who can produce them at least cost.Free
17、 markets produce the quantity of goods that maximizes the sum of consumer and producer surplus.,Price,0,Quantity,Equilibriumquantity,Supply,Demand,Cost to sellers,Value to buyers,Value to buyers,Cost to sellers,Value to buyers is greater than cost to sellers.,Value to buyers is less than cost to sel
18、lers.,The Efficiency of the Equilibrium Quantity,The Efficiency of the Equilibrium Quantity,Because the equilibrium outcome is an efficient allocation of resources, the social planner can leave the market outcome as he/she finds it. This policy of leaving well enough alone goes by the French express
19、ion laissez faire.,Market Power,If a market system is not perfectly competitive, market power may result.Market power is the ability to influence prices.Market power can cause markets to be inefficient because it keeps price and quantity from the equilibrium of supply and demand.,Externalities,Exter
20、nalities are created when a market outcome affects individuals other than buyers and sellers in that market.Externalities cause welfare in a market todepend on more than just the value to the buyers and cost to the sellers.When buyers and sellers do not take externalities into account when deciding
21、how much to consume and produce, the equilibrium in the market can be inefficient.,Summary,Consumer surplus 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.,Summary,Producer surplus measure
22、s 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.,Summary,The equilibrium of demand and supply maximizes the sum of consumer and producer surplus.This is as if the invisible hand of the marketplac
23、e leads buyers and sellers to allocate resources efficiently.Markets do not allocate resources efficiently in the presence of market failures.,Summary,An allocation of resources that maximizes the sum of consumer and producer surplus is said to be efficient.Policymakers are often concerned with the
24、efficiency, as well as the equity, of economic outcomes.,Measuring Consumer Surplus with the Demand Curve.,Measuring Consumer Surplus with the Demand Curve.,Measuring Consumer Surplus with the Demand Curve.,How the Price Affects Consumer Surplus.,Producer Surplus and the Supply Curve.,Measuring Producer Surplus with the Supply Curve.,Measuring Producer Surplus with the Supply Curve.,How Price Affects Producer Surplus.,Evaluating the Market Equilibrium.,Consumer and Producer Surplus in the Market Equilibrium.,The Efficiency of the Equilibrium Quantity,
