【正文】 us the price, which is $1. Benefit, Cost, and Surplus 169。 2020 Pearson AddisonWesley At $1 a slice, Nick buys 10 slices. So his consumer surplus is the area of the green triangle. Benefit, Cost, and Surplus 169。 2020 Pearson AddisonWesley At $1 a slice, Lisa spends $30, Nick spends $10, and together they spend $40 on pizza. The consumer surplus is the value from pizza in excess of the expenditure on it. Benefit, Cost, and Surplus 169。 2020 Pearson AddisonWesley Benefit, Cost, and Surplus Supply, Cost, and Minimum SupplyPrice Cost is what the producer gives up, price is what the producer receives. The cost of one more unit of a good or service is its marginal cost. Marginal cost is the minimum price that a firm is willing to accept. But the minimum supplyprice determines supply. A supply curve is a marginal cost curve. 169。 2020 Pearson AddisonWesley Max and Mario are the only producers of pizza. At $15 a pizza, the quantity supplied by Max is 100 pizzas. Benefit, Cost, and Surplus 169。 2020 Pearson AddisonWesley At $15 a pizza, the quantity supplied by Max is 100 pizzas and by Mario is 50 pizzas. The quantity supplied by all producers is 150 pizzas. Benefit, Cost, and Surplus 169。 2020 Pearson AddisonWesley Producer Surplus Producer surplus is the excess of the amount received from the sale of a good over the cost of producing it. We calculate it as the price received for a good minus the minimumsupply price (marginal cost), summed over the quantity sold. On a graph, producer surplus is shown by the area below the market price and above the supply curve, summed over the quantity sold. Figure on the next slide shows the producer surplus from pizza when the market price is $15 a pizza. Benefit, Cost, and Surplus 169。 2020 Pearson AddisonWesley At $15 a pizza, Max sells 100 pizzas. So his producer surplus is the area of the blue triangle. Benefit, Cost, and Surplus 169。 2020 Pearson AddisonWesley At $15 a pizza, the producer surplus for the economy is the area under the market price above the market supply curve, summed over the 150 pizzas sold. Benefit, Cost, and Surplus 169。 2020 Pearson AddisonWesley Is the Competitive Market Efficient? Efficiency of Competitive Equilibrium Figure shows that a petitive market creates an efficient allocation of resources at equilibrium. In equilibrium, the quantity demanded equals the quantity supplied. 169。 2020 Pearson AddisonWesley Resources are used efficiently when marginal social benefit equals marginal social cost. When the efficient quantity is produced, total surplus (the sum of consumer surplus and producer surplus) is maximized. Is the Competitive Market Efficient? 169。 2020 Pearson AddisonWesley Market Failure Markets don’t always achieve an efficient oute. Market failure arises when a market delivers in inefficient oute. Market failure can occur because ?Too little of an item is produced (underproduction) or ?Too much of an item is produced (overproduction). Is the Competitive Market Efficient? 169。 2020 Pearson AddisonWesley Overproduction If production is expanded to 15,000 pizzas a day, a deadweight loss arises from overproduction. Again, the efficient quantity is 10,000 pizzas a day. This loss is a social loss. Is the Competitive Market Efficient? 169。 2020 Pearson AddisonWesley Price and Quantity Regulations Price regulations sometimes put a block of the price adjustments and lead to underproduction. Quantity regulations that limit the amount that a farm is permitted to produce also leads to underproduction. Is the Competitive Market Efficient? 169。 2020 Pearson AddisonWesley Externalities An externality is a cost or benefit that affects someone other than the seller or the buyer of a good. An electric utility creates an external cost by burning coal that creates acid rain. The utility doesn’t consider this cost when it chooses the quantity of power to produce. Overproduction results. Is the Competitive Market Efficient? 169。 2020 Pearson AddisonWesley Public Goods and Common Resources A public good benefits everyone and no one can be excluded from its benefits. It is in everyone’s selfinterest to avoid paying for a public good (called the freerider problem), which leads to underproduction. Is the Competitive Market Efficient? 169。 2020 Pearson AddisonWesley Monopoly A monopoly is a firm that has sole provider of a good or service. The selfinterest of a monopoly is to maximize its profit. To do so, a monopoly sets a price to achieve its selfinterested goal. As a result, a monopoly produces too little and underproduction results. Is the Competitive Market Efficient? 169。 2020 Pearson AddisonWesley Alternatives to the Market When a market is inefficient, can one of the nonmarket methods of allocation do a better job? Often, majority rule might be used. But majority rule has its own shortings. A group that pursues the selfinterest of its members can bee the majority. Also, with majority rule, votes must be translated into actions by bureaucrats who have their own agendas. Is the Competitive Market Efficient? 169。 2020 Pearson AddisonWesley Is the Competitive Market Fair? Ideas about fairness can be divided into two groups: ? It’s not fair if the result isn’t fair. ? It’s not fair if the rules aren’t fair. 169。 2020 Pearson AddisonWesley If everyone gets the same marginal utility from a given amount of ine, and if the marginal benefit of ine decreases as ine increases, then taking a dollar from a richer person and giving it to a poorer person increases the total benefit. Only when ine is equally distributed has the greatest happiness been achieved. Is the Competitive Market Fair? 169。 2020 Pearson AddisonWesley The Big Tradeoff Utilitarianism ign