Consumer Surplus, Producer Surplus, and the Gains from Trade Chap 4

d. forcing to sell to someone

- a producer might be forced to sell to someone who will not buy at the market equilibrium

2. the efficiency of markets

- equilibrium does not always represent what is efficient for a market - Sometimes, to create better efficiency, this may occur a. reallocaate consumption among consumers b. reallocate sales among sellers c. change the quantity traded - but these reduce total surplus - as such market fulfills important functions

what functions does the market fulfill

- it allocates a. the good to the possible buyers who most value it (highest willingness to pay) b. the sell of goods to the producer who has the lowest costs - it ensures that a. each consumers values the good they buy more than the seller (mutually beneficial) b. each buyers who will not buy does not purchase a good that they value less then what the seller values it(missed mutual beneficial transaction) -

Consumer Surplus, Producer Surplus, and the Gains from Trade

- market generally tries to benefit everyone with consideration to scarcity - aspects of this include a. gains from trade b. the efficiency of markets c. problems with efficient markets

3. problems with efficient markets

- these include a. equity b. fail markets c. every individual may mot benefit from he market outcome － - efficiency a. achieve goals (not what goals should be) b. best way to achieve to a goal - fairness = very difficult to define but society cares about it

1. gains from trade

- this is shown in a graph by putting the consumer/producer curve on the same graph - y axis= $ / x axis =quantituy - the total gain from both consumer surplus and producer surplus = total surplus

total surplus

- this is the total gain from both consumer surplus and producer surplus - this is represented on the graph by the triangle created by crossing the two lines - the triangle to the left = total surplus and gains from trade

a. reallocaate consumption among consumers

- this is when goods are taken from consumers who value goods more and giving it to consumers who value it less - this will lowers total consumer surplus

c. change the quantity traded

- this is when producer/sellers are forced to sell/produce more or less of a good than the equilibrium quantity - this decreases total surplus and

b. reallocate sales among sellers

- this is when producers who sell their books at the market equilibrium are forced to withdraw and sellers who will not sell at the equilibrium are forced to sell at the equilibrium - this creates increase in total cost and decreases total producer surplus