Journaling of Chapter 7: Consumers, Producers, and The Efficiency of Markets

     Chapter 7 discusses consumer surplus and producer surplus. It also discusses market efficiency which seems to be a combination of the two, consumer surplus and producer surplus summed together.  Consumer surplus is the amount a buyer is willing to pay for a good minus the amount that the buyer actually pays for it. Producer surplus is very similar with consumer surplus except the main factors are switched. Producer surplus is the amount a seller is paid for a good minus the seller’s cost of providing it. Now in order to calculate market efficiency, you must find total surplus which is the sum of consumer and producer surplus. If the market is not efficient, it is probably due to market failure which is probably either due to market power or externalities.

     Overall, these three concepts are easy for me to grasp. I liked the examples that the book gave when discussing these topics. The reoccurring examples of CDS in both producer and consumer surplus was especially helpful. This chapter did a good job of laying down the base work for the next two chapters to come that will further elaborate. Chapter 7 was fairly easy to understand. This is probably because it is the introductory chapter of a three part series on welfare economics and market efficiency. I would give this section a difficulty rating of 1 out of 3.