surplus and efficiency and equity

Consumer surplus

Difference between what consumer are willing to pay and actually pay

Cs=Total benefit- total revenue

Producer surplus

Difference between the price and how much sellers are willing to sell it for

Efficiency

Attain when total social surplus is maximised MB=MC=P

Deadweight loss

Lost efficiency then optimal not produced more or less than equilibrium

Externality

Exist when party action affect other party by no compensation is paid (external cost )or received (external benefit)

Negative externality

External Cost imposed on others from production or consumption (car exhaust harm air quality for residents)

Positive externality

External benefit provide to others from production or consumption(vaccine reduce disease spread to community )

External cost (external cost)

when someone action imposes cost on others and don’t compensated them(second hand smoke)

Private cost(external cost)

Cost paid by person doing action(smoking)

Social cost (external cost)

Cost borne by society as whole

Private cost +external cost

External benefit

Help to others from postitive externality not rewarded (education improve society workforce)

Private benefits

Benefit received by individuals from consuming or producing good (enjoyment from meal)

External cost (external benefit )

When someone action benefits other but he receive no payment

Social cost (external benefit)

Value of action to society as whole

Private benefit +external benefit)

Divergence of cost (private vs social cost)

Social cost larger than private cost due to external cost(factory pay$100 for toy but pollution add $20 harm ,so social cost$120)

Divergence (private vs social benefit

Social benefit larger than private benefit because other gain advantages not doer

(Student pay $10 for school,but hk gain worker so social benefit more

Graph of externality