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WHAT鈥橲 NEW IN THE
SIXTH EDITION:
There are no major changes to this chapter.
LEARNING OBJECTIVES:
By the end of this chapter, students should understand:
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the link between buyers鈥?nbsp;
willingness to pay for a good and the demand curve.
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how to define and measure consumer surplus.
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the link between sellers鈥?nbsp;costs of producing a good and the supply curve.
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how to define and measure producer surplus.
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that the equilibrium of supply and demand maximizes total surplus in a market.
CONTEXT AND PURPOSE:
Chapter 7 is the first chapter in a three-chapter sequence on welfare economics and market
efficiency. Chapter 7 employs the supply and demand model to develop consumer surplus and
producer surplus as a measure of welfare and market efficiency. These concepts are then utilized
in Chapters 8 and 9 to determine the winners and losers from taxation and restrictions on
international trade.
The purpose of Chapter 7 is to develop
welfare economics
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the study of how the allocation
of resources affects economic well-being. Chapters 4 through 6 employed supply and demand in
a positive framework, which focused on the question, 鈥淲hat is the equilibrium price and
quantity in a market?鈥?nbsp;This chapter now addresses the normative question, 鈥淚s the equilibrium
price and quantity in a market the best possible solution to the resource allocation problem, or is
it simply the price and quantity that balance supply and demand?鈥?nbsp;Students will discover that
under most circumstances the equilibrium price and quantity is also the one that maximizes
welfare.
7
CONSUMERS, PRODUCERS, AND THE EFFICIENCY OF MARKETS