Market Efficiency and Market Failure

An exchange between a buyer and seller occurs usually when the exchange creates both a consumer surplus and a supplier surplus. Market efficiency occurs when consumer and supplier surplus are maximized. However, in exchanges between buyers and sellers, should society be only concerned with market efficiency? For this discussion, answer the following questions:

1a) Describe a personal experience of when you purchased a product or service whereby you feel you maximized surplus as a consumer and b) why this qualifies as being an example of consumer surplus.

Answer as follows:

1a) My personal experience is as follows: ......

1b) This qualifies as an example of consumer surplus because .....

2. The lesson notes describe both positive and negative externalities. An interesting situation occurs when there is a positive externality. This is interesting because economists state this is a result of market inefficiency or failure.

a) Combine the lesson notes with some of your own research and your own experiences to describe when you were part of a transaction that resulted in a positive externality, b) State why the transaction resulted in a positive externality, and c) State why from an economist's viewpoint this would be considered market inefficiency.

*** Do NOT use the example of a violinist or musician providing music free of charge in a restaurant or other setting.

Answer the questions as follows:

2a) My example of a positive externality experience is as follows: .....

2b) This is an example of a positive externality because ....

2c) Economists would view this as market inefficiency because .,,