Chapter 7: Consumers, Producers and the Efficiency of Markets

The chapter talks about welfare economics which is the study of how the allocation of resources affects economic well-being.  It talks about the willingness to pay for a good, or the maximum price that they a buyer is willing to pay for a good. Each consumer can receive a consumer surplus when the amount the consumer is paid is greater than the amount actually paid. It kind of reminds me of when someone buys something that they really wanted, for a way cheaper price since it was on sale. So, I think of it as how much I saved from the original price. To calculate the total consumer surplus, one can find the are of the region under the price and above the supply. Each person may have a different set price that they are willing to pay for a good which is what makes it tricky to decide whether or not the equilibrium price is fair.
The chapter also talks about the producer surplus which is the amount that a seller is paid minus the sellers cost for providing the good or service. I like to think of the surplus as the amount that the producer is profiting from the good or service. The consumer surplus is related to the demand curve whereas the producer surplus is related to the supply curve. Together, by adding the consumer surplus and the producer surplus, one gets the total surplus. Another way to calculate is by taking the value to the buyers and subtracting the cost to the sellers from it. A price of a good can either be efficient or work in equity. In order for it to be efficient, the allocation of the resource should maximize the surplus. In order for there to be equity, there should be fairness in the distribution among all the members in society.