Use the following steps to show that when Supply=Demand, price and quantity are Pareto Efficient

(a) On a supply and demand diagram, identify TCS and TPS when price is set at equilibrium. Call the equilibrium point E = (QE, PE)

(b) Suppose price was set to PH > PE. Identify the resulting TCS and TPS.

(c) Who gains and loses (if any) from setting price to PH > PE?

(d) Suppose price was set to PL < PE. Identify the resulting TCS and TPS.

(e) Who gains and loses (if any) from setting price to PL < PE?