Study booster-Consumer and Producer Surplus

CONSUMER AND PRODUCER SURPLUS


CONSUMER AND PRODUCER SURPLUS ARE MAXIMIZED AT THE
MARKET EQUILIBRIUM - THAT IS, WHERE SUPPLY AND DEMAND
INTERSECT.


THE MARKET SHOWN IN IS ONE WITHOUT ANY DISTORTIONS SUCH AS
REGULATIONS, TAXES, OR AN INABILITY FOR BUYERS TO MEET
SELLERS. IT IS SUBJECT TO WHAT ADAM SMITH DESCRIBED AS THE
INVISIBLE HAND: IF THE PRICE IS ANYTHING EXCEPT THE
EQUILIBRIUM PRICE, MARKET FORCES WILL EVENTUALLY RETURN
THE MARKET PRICE TO EQUILIBRIUM .


NOT ALL MARKETS ARE EFFICIENT. THERE ARE A NUMBER OF
REASONS WHY A MARKET MAY BE INEFFICIENT. PERHAPS MOST WELL
KNOWN IS INEFFICIENCY CAUSED BY GOVERNMENT INTERVENTION.
GOVERNMENTS CAN INSTITUTE ANY NUMBER OF POLICIES THAT
PREVENT MARKETS FROM ACHIEVING THE FREE MARKET
EQUILIBRIUM PRICE AND QUANTITY: TAXES RAISE PRICES, QUOTAS
LIMIT THE QUANTITY SOLD, AND REGULATIONS AFFECT THE SUPPLY
AND DEMAND CURVES. MARKET INEFFICIENCY CAN ALSO BE CAUSED
BY THINGS SUCH AS IRRATIONAL MARKET ACTORS AND BARRIERS TO
TRANSACTIONS, SUCH AS AN INABILITY FOR BUYERS AND SELLERS
TO FIND ONE ANOTHER.


ECONOMISTS OFTEN SEEK TO MAXIMIZE EFFICIENCY, BUT IT IS
IMPORTANT TO CONTEXTUALIZE SUCH AIMS. EFFICIENCY IS BUT ONE
OF MANY VYING GOALS IN AN ECONOMIC SYSTEM, AND DIFFERENT
NOTIONS OF EFFICIENCY MAY BE COMPLEMENTARY OR MAY B E AT
ODDS. MOST COMMONLY, EFFICIENCY IS CONTRASTED OR PAIRED
WITH MORALITY, PARTICULARLY LIBERTY, AND JUSTICE. SOME
ECONOMIC POLICIES MAY BE SEEN AS INCREASING EFFICIENCY AT A
COST TO OTHER GOALS OR VALUES, THOUGH THIS IS CERTAINLY NOT
A UNIVERSAL TRADEOFF. FOR EXAMPLE, TAXATION WILL ALWAYS