Chapter 7 Reflections- Consumers, Producers, and the Efficiency of Markets

1.  Describe efficiency from the perspective of an economist?

2.  What was the most difficult concept in this chapter for you?  Why?

An Economist's Perspective of Efficiency

Efficiency is defined as "the property of a resource allocation of maximizing the total surplus received by all members of society." 

Basic tools that economists use to study the welfare of buyers and sellers in a market:

1. Consumer Surplus: value to buyers - amount paid by buyers. Check out this link for more information about consumer surplus http://youtu.be/qTxniCLYgok
2. Producer Surplus: amount received by sellers - cost to sellers http://youtu.be/-V-Y5klejSg
3. Total Surplus: value to buyers - cost to sellers

When something is not efficient this means that buyers and sellers are not realizing the potential gains. For sellers this means that they are not producing at the lowest cost. An inefficiency in terms of the buyer means that the buyer is not consuming a good that he/she highly values. 

There were several concepts in this chapter:

Welfare economics, willingness to pay, consumer surplus, cost, producer surplus, efficiency, equality. I've talked a little bit about consumer surplus, producer surplus and efficiency. The concept that was the most difficult concept for me was the one about efficiency. Efficiency within the free market is not a given, What happens when there is market failure?