How can supply and demand be used as a tool for analysis?
The basic logic of supply and demand is a powerful tool for analysis. For example, supply and demand analysis show that an oil import tax will reduce the quantity of oil demanded, increase domestic production and generate revenues for the government. 5. How is market efficiency related to demand and supply? Supply and demand curve be used to illustrate the idea of market efficiency, an important aspect of normative economics. 6. What is Consumer Surplus? Consumer surplus is the difference between maximum amount a person is willing to pay for a good and the current market price. 7. What is Producer Surplus? Producer Surplus is the difference between the current market price and the full cost of production at each output level. 8. When are producer and consumer surpluses maximized? Producer and consumer surpluses are maximized at free market equilibrium in competitive markets. 9. What happens to consumer surplus if goods are over or under produced? The is a loss in both consumer and prod
