Efficiency in the Market

1
Efficiency in the Market

• In the context of a market, efficiency means that
  all transactions that can benefit both buyer and
  seller have been realized.
• In other words, there are no more possible trades
  that would make both buyer and seller better off.
• All potential profits are realized.

2
The Market Equilibrium is Efficient

• In equilibrium...
• all demanders who are willing and able to pay the
  market price (or more) are able to find a willing
  seller.
• all suppliers who are willing to accept the
  market price (or less) are able to find a willing
  buyer.

3
6.00
Price of Syrup ( per pint)
5.00
SUPPLY
4.00
3.00
2.00
1.00
DEMAND
6
5
7
4
3
Pints of Syrup per week (thousands)
4
6.00
Price of Syrup ( per pint)
5.00
SUPPLY
4.00
3.00
2.00
1.00
DEMAND
6
5
7
4
3
Pints of Syrup per week (thousands)
5
The quantity demanded of a product depends on...

• The price of the product

• Consumers incomes
• The price of related goods
• The number of potential consumers (population)
• Consumer tastes and advertising
• Consumer expectations about future prices

6
Distinguishing between a change in demand and a
change in quantity demanded

• A change in quantity demanded is a movement along
  a given demand curve.
• Results from a change in the price of the good
  in question.
• A change in demand is a shift of the entire
  demand curve.
• Results from a change in some variable other
  than the price of the good in question.

7
Increase in Demand
6.00
NEW EQUILIBRIUM
Price of Syrup ( per pint)
5.00
SUPPLY
4.00
3.00
NEW DEMAND
2.00
1.00
INITIAL
DEMAND
6
5
7
4
3
Pints of Syrup per week (thousands)
8
The quantity of a product supplied depends on...

• The price of the product

• The cost of inputs
• Available technology
• The number of potential suppliers
• Producer expectations about future prices

9
Distinguishing between a change in supply and a
change in quantity supplied

• A change in quantity supplied is a movement along
  a given supply curve.
• Results from a change in the price of the good
  in question.
• A change in supply is a shift of the entire
  supply curve.
• Results from a change in some variable other
  than the price of the good in question.

10
6.00
Price of Syrup ( per pint)
INITIAL
5.00
SUPPLY
4.00
NEW SUPPLY
3.00
2.00
NEW EQUILIBRIUM
Increase in Supply
1.00
DEMAND
6
5
7
4
3
Pints of Syrup per week (thousands)
11
The quantity demanded of a product depends on...

• The price of the product

• Consumers incomes
• The price of related goods
• The number of potential consumers (population)
• Consumer tastes and advertising
• Consumer expectations about future prices

12
The quantity of a product supplied depends on...

• The price of the product

• The cost of inputs
• Available technology
• The number of potential suppliers
• Producer expectations about future prices