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Chapter 7 HMWK

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?


Efficiency is the allocation of resources in a way that maximizes the total surplus for everyone in society. It results in consumers feeling like they saved money, and producers feeling like they made a profit that is worth their while. Both consumer surplus and producer surplus can be measured with a demand curve.

These surpluses are an important factor in determining market equilibrium because it results in the resources being allocated to the members who value it most, as measured by price.

Market efficiency should not always be the goal of policy setters. For example, it would be unwise to try to maximize the black market for slave labor because that does not contribute to an society with equality. However, government should not interfere in industry by levying heavy taxes because that distorts incentives and causes some buyers and sellers to no longer participate, shrinking the market itself.

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