[工作范文]3 The Efficiency of Competitive markets.pptVIP

The Efficiency of Competitive Markets Chapter 7 of Mankiw (2004) Ancient Economics Adam Smith, wrote a book over 200 years ago that is still useful today When people are doing things for themselves, they work hardest when their efforts will help themselves. These efforts will also help the economy as a whole. Consider these classes as an example Consumer and Producer Surpluses If we use a diagram it is easy to see how people are better off from voluntary exchanges. A person buys (or sells) something because it increases their happiness. So obviously, a person would not do so if the cost was greater than the happiness gained. Consumer surplus is essentially the value that consumers place on a good. This consumer surplus is the gain they receive from being in the market. CS = value to consumers – price paid by buyers Producer surplus is therefore the value that companies receive from being in the market. Producer surplus is the gain they receive from exchange. PS = amount received by sellers – cost of sellers Please recall that for the time being, we are only considering competitive markets where suppliers are only able to capture the market price. That is; there is no price discrimination. Consumer Surplus Lets consider a demand curve for Coke Consumer Surplus Consumer Surplus If the market price is $2.00, we will buy three bottles and spend in total $6.00 Price X Quantity = $2 X $3 = $6 We would be willing to pay $9.00 for it $4 + $3 + $2 = $9 The difference in what we paid and what we would be willing to pay is the consumer surplus. That is, the gain we receive from voluntary exchange Consumer Surplus Graphically, Producer Surplus Consider our company China Cola. The Net Effect Now please consider what happens when we add the consumer and producer surpluses together: The Net Effect In competitive markets, we assume that markets clear, which means they are in equilibrium. At this point the consumer surplus and the producer surplus are maximized. They ar