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Consumers, Producers, and the Efficiency of Markets

Consumers, Producers, and the Efficiency of Markets. Consumer Surplus. Demand curve is basically a measure of buyers’ willingness to pay Consumer Surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. What does Consumer Surplus Measure?.

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Consumers, Producers, and the Efficiency of Markets

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  1. Consumers, Producers, and the Efficiency of Markets

  2. Consumer Surplus • Demand curve is basically a measure of buyers’ willingness to pay • Consumer Surplus is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

  3. What does Consumer Surplus Measure? • Measure of economic well-being of buyers

  4. Producer Surplus • Amount a seller is paid minus the cost of production • Measures the benefit sellers receive from participating in a market

  5. Market Efficiency • Sum of consumer and producer surplus is called total surplus • Total surplus is measure of society’s economic well-being • If an allocation of resources maximizes total surplus then it exhibits efficiency

  6. Evaluating Market Equilibrium • Free markets allocate 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 the lowest cost • Free markets produce the quantity of goods that maximizes the sum of consumer and producer surplus

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