7CONSUMERS,PRODUCERS,ANDTHEEFFICIENCYOFMARKETSrketsWHAT’SNEWINTHESIXTHEDITION:Therearenomajorchangestothischapter.LEARNINGOBJECTIVES:Bytheendofthischapter,studentsshouldunderstand:thelinkbetweenbuyers’willingnesstopayforagoodandthedemandcurve.howtodefineandmeasureconsumersurplus.thelinkbetweensellers’costsofproducingagoodandthesupplycurve.howtodefineandmeasureproducersurplus.thattheequilibriumofsupplyanddemandmaximizestotalsurplusinamarket.CONTEXTANDPURPOSE:Chapter7isthefirstchapterinathree-chaptersequenceonwelfareeconomicsandmarketefficiency.Chapter7employsthesupplyanddemandmodeltodevelopconsumersurplusandproducersurplusasameasureofwelfareandmarketefficiency.TheseconceptsarethenutilizedinChapters8and9todeterminethewinnersandlosersfromtaxationandrestrictionsoninternationaltrade.ThepurposeofChapter7istodevelopwelfareeconomics—thestudyofhowtheallocationofresourcesaffectseconomicwell-being.Chapters4through6employedsupplyanddemandinapositiveframework,whichfocusedonthequestion,“Whatistheequilibriumpriceandquantityinamarket?”Thischapternowaddressesthenormativequestion,“Istheequilibriumpriceandquantityinamarketthebestpossiblesolutiontotheresourceallocationproblem,orisitsimplythepriceandquantitythatbalancesupplyanddemand?”Studentswilldiscoverthatundermostcircumstancestheequilibriumpriceandquantityisalsotheonethatmaximizeswelfare.KEYPOINTS:Consumersurplusequalsbuyers’willingnesstopayforagoodminustheamounttheyactuallypayforit,anditmeasuresthebenefitbuyersgetfromparticipatinginamarket.Consumersurpluscanbecomputedbyfindingtheareabelowthedemandcurveandabovetheprice.Producersurplusequalstheamountsellersreceivefortheirgoodsminustheircostsofproduction,anditmeasuresthebenefitsellersgetfromparticipatinginamarket.Producersurpluscanbecomputedbyfindingtheareabelowthepriceandabovethesupplycurve.Anallocationofresourcesthatmaximizesthesumofconsumerandproducersurplusissaidtobeefficient.Policymakersareoftenconcernedwiththeefficiency,aswellastheequality,ofeconomic