Efficiency and Fairness of Markets Flashcards
On the consumer side of efficiency:
we make the distinction between value and price
On the Producer side
Make the distinction between cost and price
Efficiency =
When Marginal revenue (aka demand) is equivalent to marginal cost (aka supply)
Consumer Surplus:
the difference between the price a consumer pays for an item and the price he would be willing to pay rather than do without it.
Producer Surplus:
the difference between how much a person would be willing to accept for given quantity of a good versus how much they can receive by selling the good at the market price.
Dead Weight Loss:
the decrease in the consumer surplus and producer surplus that results from producing an inefficient quantity of a good.
Markets are efficient when:
There is no dead weight loss
Total surplus:
calculated by adding up benefits every participant receives plus producer surplus
Prices above or below market equilibrium cause:
A reduce to total surplus
