1. Describe efficiency from the perspective of an economist.
2. Why are producer and consumer surpluses important in determining market equilibrium?
3. Should market efficiency always be the goal of policy setters? Why or why not? What might an alternative be?
Efficiency from the perspective of an economist is when resources are distributed and allocated with minimal waste. The laws of supply and demand keep prices heading toward equilibrium. Equilibrium price is the best price, the price the market sets based on the supply and the demand for the service or good. Equilibrium price isn’t good for everyone, and resources are not distributed evenly, equally, or in an equitable fashion. Equilibrium price is set based on the supply in the market, and based on the demand in the market.
Consumer and producer surplus is a good measure of economic well-being if policymakers want to satisfy the buyers and sellers. It helps determine the equilibrium by understanding some individual consumers and producers and what prices they would leave the market in. These tools help us understand if the allocation of resources is determined by free markets.
Market efficient shouldn’t always be the goal of policy setters. Policy makers should care about equality and how the pieces of the pie are divided up. Efficiency will maximize the size of the pie, but that could have some unforeseen consequences. Unregulated markets can cause market failure, or destroy things not intended to be destroyed in the process. This is a great area for policy makers to step in and help guide the market and put in some guide rails.
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