Module 6.4 Market Efficiency Lecture

What is consumer surplus?

The value consumers derive from purchases, calculated as the difference between what consumers are willing to pay and what they actually pay.

What is producer surplus?

The value producers receive from sales, calculated as the difference between the price at which they sell their goods and the minimum price at which they are willing to sell.

What is consumer surplus?

The value consumers derive from purchases, calculated as the difference between what consumers are willing to pay and what they actually pay.

What is producer surplus?

The value producers receive from sales, calculated as the difference between the price at which they sell their goods and the minimum price at which they are willing to sell.

What is economic surplus?

The total benefit to society, calculated as the sum of consumer surplus and producer surplus.

What does the demand curve represent?

The demand curve represents consumers' willingness to pay for goods, indicating marginal benefit.

What does the supply curve represent?

The supply curve represents producers' willingness to sell goods, indicating marginal cost.

What occurs in a valuable transaction?

Valuable transactions occur when the marginal benefit to consumers exceeds the marginal cost to producers.

What happens when marginal benefit is greater than marginal cost?

If marginal benefit > marginal cost, then it is advisable to produce the goods.

What determines equilibrium in supply and demand?

The equilibrium of supply and demand determines the quantity that maximizes economic surplus.

What does efficiency in resource allocation mean?

Efficiency occurs when resources are allocated to maximize economic surplus without wasteful transactions.

What is overproduction?

Overproduction occurs when the marginal cost of producing an additional good exceeds its marginal benefit, leading to deadweight loss.

What is underproduction?

Underproduction happens when potential transactions do not occur due to insufficient production, also resulting in deadweight loss.

In the case study of tacos, how many tacos does Marquise buy at an equilibrium price of $3?

Marquise buys two tacos.

What total value is created when Marquise and Nicole each purchase tacos?

The total value created is $15.

What occurs if Marquise's second taco is taken away and given to Nicole?

Marquise would lose $4 in value, and Nicole would gain $2 in value, reducing total value to $13.

What does market dynamics indicate about individual buying decisions?

Individuals act on self-interest, making rational buying decisions by comparing marginal benefit against marginal cost.

How do market allocations maximize economic surplus?

Market allocations effectively distribute goods to those with the highest marginal benefit and willingness to pay, maximizing economic surplus.