Summary

• Consumer surplus equals buyers' willingness to pay for a good minus the amount they actually pay, and it measures the benefit buyers get from participating in a market. Consumer surplus can be computed by finding the area below the demand curve and above the price.

• Producer surplus equals the amount sellers receive for their goods minus their costs of production. and it measures the benefit sellers get from participating in a market, Producer surplus can be computed by finding Ihe area below the pr>ce and above the supply curve.

• An allocation of resources that maximizes the sum of consumer and producer surplus is S"»id to be efficient. Policymakers are often concerned with the efficiency, as well as the equality, of economic outcomes.

• The equilibrium of supply and demand maximizes the sum of consumer and producer surplus. That is. the invisible hand of the marketplace leads buyers and sellers to allocate resources efficiently.

• Markets do not allocate resources efficiently in the presence of market failures such as market power or externalities-

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