Question

"Consumers, producers, and the efficiency of Markets

Answer 1

INTRODUCTION

Consumers, Producers & Efficiency of Markets. ... The market demand curve depicts the various quantities that buyers would be willing and able to purchase at different prices. Consumer surplus, equals the amount buyers are willing to pay for a good minus the amount they actually pay for it.

.CONSUMER SURPLUS

Willingness to pay measures the buyers’ value of a good or service as the maximum amount that a buyer will pay for a good. Consumer surplus is the buyer’s willingness to pay for a good minus the amount the buyer actually pays for it. Every buyer has a different willingness to pay. The market demand curve depicts the various quantities that buyers would be willing and able to purchase at different prices. Consumer surplus, equals the amount buyers are willing to pay for a good minus the amount they actually pay for it. It measures the buyer’s perceived benefit from the good. It is measured as the area below the demand curve and above the price in the market. Represented in the demand schedule and the demand curve Price / Buyers / Quantity.

PRODUCER SURPLUS

Producer surplus is the amount a seller is paid for a good minus its cost. It measures the benefit to sellers participating in a market. Producer surplus is closely related to the supply curve. The producer surplus equals the area below the price and above the supply curve. Represented in the supply schedule Price / Sellers / Quantity Supplied.

MARKET EFFICIENCY
Consumer surplus = value to buyers – amount paid by buyers.+ Producer surplus = amount received by sellers – cost of sellers.= Total surplus = consumer surplus + producer surplus or value of buyers – cost of sellers.

Efficiency is when a resource allocation maximizes the total surplus received by all members of society. Social planners (policymakers) might also care about equity the fairness of the distribution of well being among the various buyers and sellers. Free markets allocate supply of goods to buyers who value them most highly. Valuation is measured by buyer’s willingness to pay. To allocate the demand for goods to the sellers who can produce them at least cost. Produce the quantity of goods that maximizes the sum of consumer and producer surplus.