1. EFFICIENCY by Caterina Ficiarà

2. We know that a society has to face different problems. To sum up, the main difficulties we can find in every nation are: - Scarcity of resources - Efficiency

3. What do we mean with the word “Efficiency”? This expression means that a society tries to get the most it can from its scarce resources.

4. However, Governments often try to achieve a more equal distribution of economic well- being. The research for the equity (which means that the benefits of those resources are distributed fairly among the people) ends up with reducing the efficiency of the economic system.

5. To understand the concept of the market efficiency, we have to say something about: -“consumer surplus”, which means the amount a buyer wants to pay for a good minus the amount the buyer actually pays for it. Consumer surplus measures the benefit to buyers of participating in a market. - “producer surplus”, which means the amount a seller is paid minus the cost of production. Producer surplus measures the benefit to sellers of participating in a market.

6. So if we want to measure the economic well being of a society, one of the possible instruments we can use for this analysis is the “total surplus”,that is the sum of consumer and producer surplus. If to calculate consumer surplus we have to do value to buyers - amount paid by buyers, and if to calculate producer surplus we have to do amount received by sellers - cost to sellers...so we can say that the total surplus is given by value to buyers - cost to sellers

7. If an allocation of resources maximizes total surplus, we say that the allocation exhibits efficiency. If an allocation is not efficient, some of the gains from trade among buyers and sellers are not realized (an example of an inefficient allocation is when a good is not produced by the sellers with the lowest cost)

8. The equilibrium of supply and demand (that is reached at the point where these two curves meet each other) maximizes the sum of consumer and producer surplus. In other words, the equilibrium outcome is an efficient allocation of resources.

9. So, to sum up, consumer surplus and producer surplus are the main instruments in order to evaluate the efficiency of free markets. Let’s see an example that explains how markets manage to be efficient. Ticket scalping: Scalpers buy tickets to concerts or football matches and then sell them at a price above their original cost. In this way, consumers with the greatest willingness to pay for the tickets actually do get them.

10. However, we talked about how free markets can maximize surplus and achieve efficiency in this way. But in some different markets, a single seller or a single buyer can influence the level of the prices. This is so called Market power. And Market power causes inefficiency, because in this situation the equilibrium between supply and demand is not reached.

11. Another reason of the inefficiency is that the decisions of buyers and sellers sometimes affect people who do not partecipate into the market. An example is the pollution. Then, the externalities are able to make a market inefficient.

12. Market power and externalities are examples of the so-called phenomena Market failure, which means the inability of some unregulated markets to allocate resources efficiently.