Economic Efficiency

Question 1

What does an efficient market look like?

Answer 1

An efficient market is one that is impossible to improve the situation of one party without imposing a cost on another. Therefore it means that the economy is getting as much benefit as possible from its scarce resources and all possible gains from trade have been achieved.

Question 2

What is a rule to remember about increasing surplus?

Answer 2

It is impossible to increase consumer surplus without reducing producer surplus and impossible to produce greater producer surplus without reducing consumer surplus

Question 3

Are price controls efficient?

Answer 3

Price floors and price ceilings are inefficient because they transfer surpluses and both block some transactions from happening thus producing deadweight loss.