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Demand, supply and market efficiency (normative economics)

Demand, supply and market efficiency (normative economics) Consumer surplus: The difference between the maximum amount a person is willing to pay for a good and its current market price. p. equilibrium point. p eq. D. 0. q eq. q.

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Demand, supply and market efficiency (normative economics)

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  1. Demand, supply and market efficiency (normative economics) • Consumer surplus: The difference between the maximum amount a person is willing to pay for a good and its current market price. p equilibrium point peq D 0 qeq q

  2. Producer surplus: The difference between the current market price and the full cost of production for the firm. p S equilibrium point peq 0 qeq q

  3. Competitive markets maximize the sum of producer and consumer surplus. p • Discussion: • - Who does really pay the taxes? • Price ceilings (e.g. rent controls) • Price floors (e.g. min. wage) S equilibrium point peq D 0 qeq q

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