(5) Market Efficiency

Total Video Time: 18 minutes

Introduction

In the last module, we’ve looked at the model of supply and demand to see how market determine prices and allocate goods, and what happens when the government intervenes. You were introduced to government intervention: price ceilings, price floors, and taxes — and in that process you also some discussion of consumer surplus and producer surplus. In this module, we elaborate on the concept of economic surplus — the benefits that occur when a seller and a buyer interact. Since the trade is voluntary, both get something from the transaction, so wealth increases when people voluntarily trade in a market. When the government intervenes and transactions cease to occur (for whatever reason), these benefits decrease.

With the new structure of the Asarta/Butters book, I’m doing things a little bit out of order, so right now the only video I’ve created that specifically applies to this material at this point is Consumer Surplus. I apparently don’t have one for Producer Surplus (but when the concept was introduced in my previous textbook, it was later, during the chapter on firms’ production and costs). However, as mentioned previously, the videos in Module 4 include some discussion of this, so I recommend you re-watch them if you are at all confused.

Video 5.1: Consumer Surplus (18 min)

This video explains how the price elasticities of supply and demand help determine how much prices in a market will change when there is a shift in one of the curves, and why the prices of some goods fluctuation more than others.

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