ECON 111 Lecture Notes - Lecture 7: Baltimore City Fire Department, Economic Surplus, Demand Curve
Document Summary
Chapter 7: consumers, producers, and the eiciency of markets. Consumer surplus equals buyer"s willingness to pay for a good minus the amount they actually pay for it, and it measures the beneit that buyers receive from paricipaing in a market. Consumer surplus can be computed by inding the area below the demand curve and above the price. Producer surplus equals the amount that sellers receive for their goods minus their costs of producion, and it measures the beneit that sellers receive from paricipaing in a market. Producer surplus can be computed by inding the area below the price and above the supply curve. An allocaion of resources that maximizes the sum of consumer and producer surplus is said to be eicient. Policymakers are oten concerned with the eiciency, as well as the equity, of economic outcomes. The equilibrium of supply and demand maximizes the sum of consumer and producer surplus.
