The Logic of Maximizing Behavior and Maximizing in the Marketplace

Key Takeaways

• In a competitive system in which the interaction of demand and supply determine prices, the corresponding demand and supply curves can be considered marginal benefit and marginal cost curves, respectively.
• An efficient allocation of resources is one that maximizes the net benefit of each activity. We expect it to be achieved in markets that satisfy the efficiency condition, which requires a competitive market and well-defined, transferable property rights.
• Consumer surplus is the amount by which the total benefit to consumers from some activity exceeds their total expenditures for it.
• Producer surplus is the amount by which the total revenues of producers exceed their total costs.
• An inequitable allocation of resources implies that the distribution of income and wealth is inequitable. Judgments about equity are normative judgments.