demand, supply and market efficiency (normative economics)
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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. - PowerPoint PPT Presentation
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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.
q
p
0
D
qeq
peq equilibrium point
• Producer surplus: The difference between the current market price and the full cost of production for the firm.
q
p
0
S
qeq
peq equilibrium point
• Competitive markets maximize the sum of producer and consumer surplus.
q
p
0
S
D
qeq
peq equilibrium point
Discussion:
- Who does really pay the taxes?
- Price ceilings (e.g. rent controls)
- Price floors (e.g. min. wage)
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