Why are producer and consumer surpluses important in determining market equilibrium?
The total surplus, which is the sum of the producer and consumer surpluses help determine the market equilibrium because the information is measured between supply and demand curves.
Consumer surplus equals the area above the price which is below the demand curve. The producer surplus equals the area below the price and above the supply curve. The equilibrium outcome is an efficient allocation of resources.
It is important to keep the market equilibrium healthy for the overall efficiency of the economy.
Should market efficiency always be the goal of policy setters? Why or why not?
Maintaining market efficiency should typically be the goal of policy setters because; consumer surplus is a benefit that buyers receive and a producer surplus is a benefit that that the sellers receive. The basic tools that economists use to determine a healthy market is the consumer and producer surpluses. Policy setters should put forth the best policies to maintain a good balance between the surpluses in order to maintain a healthy economy/free market. But most economists often advocate free markets as the best way to organize economic activity instead of centrally planned. I would agree that it is probably very difficult to set the policies based on
No comments:
Post a Comment