Ch. 7 Reflection

1.              Describe efficiency from the perspective of an economist. Efficiency as defined in our textbook is “the property of a resource allocation of maximizing the total surplus received by all members of society”. In a free market, this is most clearly demonstrated by the equilibrium price which is the intersection between the supply and demand curves.

2.              Why are producer and consumer surpluses important in determining market equilibrium? Producer and consumer surpluses can both be determined by market equilibrium and can determine market equilibrium in a free market. These surpluses can be looked at in terms of efficiency and equality when viewed by policy makers to determine the “economic well-being of everyone in society”.


3.         Should market efficiency always be the goal of policy setters?  Why or why not? Is there a trade-off between efficiency and equality? If you don't like efficiency what is your preferred alternative? Not necessarily, for instance policy setters need to consider whether market power exists within a market and whether externalities exist before they can determine what policy best contributes to the economic well-being of society. There is a tradeoff between efficiency and equality. For instance, it may be best for the economy to maximize efficiency which grows the economy and maximizes GDP. However, maximizing equality in an economy may not grow GDP but may increase GNH (gross national happiness). I believe that both externalities and market power need to be considered by policy makers in order to reach a balance between maximizing efficiency and equality in a market place. This still does not include the social equity piece of the puzzle, but it does get us closer to a society that is sustainable and equal. 

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