• Analyze demand and supply as a social adjustment mechanism

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 situation 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 all the possible gains from trade have been achieved. In other

words, the optimal amount of each good and service is produced and consumed.

Consumer Surplus, Producer Surplus, Social Surplus

Consider a market for tablet computers, as Figure 3.23 shows. The equilibrium price is $80 and the

equilibrium quantity is 28 million. To see the benefits to consumers, look at the segment of the demand curve
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