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Chapter 8 summary: -Consumer surplus equals buyers' willingness to pay for a good minus the amount they actually pay for it. -Consumer surplus measures the benefit buyers get from participating in a market -Consumer surplus= area below the demand curve and above the price.

-Producer surplus equals the amount sellers receive for their goods minus their costs of production. -Producer surplus measures the benefit sellers get from participating in a market. -Producer surplus = area below the price and above the supply curve.

-An allocation of resources that maximizes the sum of consumer and producer surplus is said to be efficient.

-Policy makers are often concerned with the efficiency, as well as equity, of economic outcomes. -The equilibrium of supply and demand maximizes the sum of consumer and producer surplus. The invisible hand of the marketplace leads buyers and sellers to allocate resources efficiently -Market fails to allocate resources efficiently in the presence of market failures such as market power or externalities

chapter 7 key concepts welfare economics: the study of how the allocation of resources affects economic well-being willingness to pay: The maximum amount that a buyer will pay for a good consumer surplus: the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it cost: the value of everything a seller must give up to produce a good producer surplus: the amount a seller is paid for a good minus the seller’s cost of providing it efficiency: the property of a resource allocation of maximizing the total surplus received by all members of society equity: the fairness of the distribution of well-being among the members of society

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