Welfare analysis

Economic efficiency and Social Welfare

  • Some details on what economic efficiency means here

Consumer and Producer surplus

  • Consumer surplus: sum of (marginal utility - unit price)
  • Producer surplus: sum of (marginal revenues - marginal costs) = total revenue - variable costs
  • Producer surplus ≠ Profit.

Profits = total revenue - total costs = Producer surplus - fixed costs

The consumer and producer surplus depends on the market structure: see the case of Ex1 PS3