Consumers Producers, and the e Efficiency of Markets Chapter 7 Copyright C 2001 by Harcourt, Inc All rights reserved. Requests for permission to make copies of any part of t work should be mailed to Permissions Department, Harcourt College Publishers 6277 Sea Harbor Drive. Orlando Florida 32887-6777
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 the work should be mailed to: Permissions Department, Harcourt College Publishers, 6277 Sea Harbor Drive, Orlando, Florida 32887-6777
Revisiting the Market Equilibrium Do the equilibrium price and quantity maximize the total welfare of buyers and sellers? e Market equilibrium reflects the way markets allocate scarce resources o Whether the market allocation is desira ble is determined by welfare economIcs。 H arc Inc items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Revisiting the Market Equilibrium Do the equilibrium price and quantity maximize the total welfare of buyers and sellers? u Market equilibrium reflects the way markets allocate scarce resources. u Whether the market allocation is desirable is determined by welfare economics
Welfare economics Welfare economics is the study of how the allocation of resources affects economic well-being. o Buyers and sellers receive benefits from taking part in the market. o The equilibrium in a market maximizes the total welfare of buyers and sellers H arc Inc items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Welfare Economics Welfare economics is the study of how the allocation of resources affects economic well-being. u Buyers and sellers receive benefits from taking part in the market. u The equilibrium in a market maximizes the total welfare of buyers and sellers
Welfare economics Equilibrium in the market results in maximum benefits and therefore maximum total welfare for both the consumers and the producers of the product. H arc Inc items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Welfare Economics Equilibrium in the market results in maximum benefits, and therefore maximum total welfare for both the consumers and the producers of the product
Welfare conomics e Consumer surplus measures economic welfare from the buyer's side o Producer surplus measures economic welfare from the sellers side Harcourt, Inc. items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Welfare Economics uConsumer surplus measures economic welfare from the buyer’s side. uProducer surplus measures economic welfare from the seller’s side
Consumer Surplus e Willingness to pay is the maximum rice that a buyer is willing and able to pay for a good. oIt measures how much the buyer values the good or service H arc Inc. items and derived items c ht o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Consumer Surplus uWillingness to pay is the maximum price that a buyer is willing and able to pay for a good. uIt 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. Harcourt, Inc. items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. 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… Buyer Willingness to Pay John 100 Paul 80 George 70 Ringo 50 Harcourt, Inc. items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Four Possible Buyers’ Willingness to Pay... Buyer Willingness to Pay John $100 Paul 80 George 70 Ringo 50
Consumer Surplus The market demand curve depicts the various quantities that buyers would be willing and able to purchase at different prices. Harcourt, Inc. items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Consumer Surplus 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. Price Buyer Quantity Demanded More than $100None 0 S80 to $100 John $7oto$80 John, Paul 50to$70 John, Paul, George 234 $50 or less Ringo H arc Inc items and derived items copyright C 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Four Possible Buyers’ Willingness to Pay... Price Buyer Quantity Demanded More than $100 None 0 $80 to $100 John 1 $70 to $80 John, Paul 2 $50 to $70 John, Paul, George 3 $50 or less Ringo 4