ECON 101 Study Guide - Midterm Guide: International Trade, Comparative Advantage, Protectionism
Document Summary
The total amount of consumer surplus in a market is equal to the area below the demand curve and above the market price. The total amount of producer surplus is equal to the area above the market supply curve and below the market price. To achieve economic efficiency in this market, the marginal benefit from the last unit sold should equal the marginal cost of production/ Equilibrium in a competitive market results in the greatest amount of economic surplus, or total net benefit to society, from the production of a good or service. Not every individual is better off if a market is a competitive equilibrium. We have only concluded that economic surplus, (the total net benefit to society) is greatest at economic equilibrium. Governments place price floors to aid sellers and price ceilings to aid buyers. Price floors must be above equilibrium and price ceilings must be below.
