Lesson: Demand, Supply, and Efficiency
Intorduction
Introduction
The familiar demand and supply diagram holds within it the concept of economic efficiency. One typical way that economists define efficiency is when it is impossible to improve the situation of one party without imposing a cost on another. Conversely,
if a condition is inefficient, it becomes possible to benefit at least one party without imposing costs on others.
Efficiency in the demand and supply model has the same basic meaning: The economy is getting as much benefit as possible from its scarce resources and has achieved all the possible gains from trade. In other words, the optimal amount
of each good and service is produced and consumed.
| Essential Question |
As you complete this lesson, consider the essential question. By the end of the lesson, you should be able to provide a detailed explanation to this question.
How are demand, supply, and efficiency related?
| Objectives |
By the end of this lesson, you will be able to:
- contrast consumer surplus, producer surplus, and social surplus
- explain why price floors and price ceilings can be inefficient
- analyze demand and supply as a social adjustment mechanism
| Key Terms |
As you complete this lesson, look for the key terms. Add each term to your Vocabulary Chart. You may use context clues or the Glossary to help you define each term. Then, write or draw an example to help you remember what each term means.
- consumer surplus
- social surplus/economic surplus/total surplus
- deadweight loss