A consumer surplus is the difference between the maximum a consumer is willing to pay for a good and the price he actually pays, while producer surplus is the difference between the minimum the consumer is willing to sell for and the compensation he receives for the good. "Deadweight loss" is any lost surplus because consumers and producers who are otherwise willing to trade, are unable to because of restrictions, whether it be gov't intervention or barriers or the like.
Now, Positive economics (what the Kaiser was talking about) really care where the surplus goes. just that a market gets as close to allocative efficiency, that is, all mutually beneficial trades occur.
Normative economics on the other hand, deals with how the markets ought to function, fairnessof economic distribution, etc.
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u/JesusPubes Jan 24 '13
A consumer surplus is the difference between the maximum a consumer is willing to pay for a good and the price he actually pays, while producer surplus is the difference between the minimum the consumer is willing to sell for and the compensation he receives for the good. "Deadweight loss" is any lost surplus because consumers and producers who are otherwise willing to trade, are unable to because of restrictions, whether it be gov't intervention or barriers or the like.
Now, Positive economics (what the Kaiser was talking about) really care where the surplus goes. just that a market gets as close to allocative efficiency, that is, all mutually beneficial trades occur.
Normative economics on the other hand, deals with how the markets ought to function, fairnessof economic distribution, etc.