<p>The demand curve embodies the consumer's plans to buy at the market price, and these plans are not realised yet. For this reason, it's referred to as the willingness to pay curve. Similarly, the supply curve represents the producer's plan to supply, according to the market price. It is the willingness to sell curve. The area below the demand curve is the consumers' willingness to pay, and the area below the supply curve is the producers' willingness to sell/part with his good. At the equilibrium, the consumer's plans and the producer's plans perfectly align. At that price, the consumer buys all she wants, i.e. Consumer Surplus is maximized [CS= willingness to pay (area below dd curve) - total revenue]. At that same price, the producer sells all he wants, i.e. Producer Surplus is maximized. Hence total surplus, which is CS + PS is maximized and hence at the market equilibrium, welfare is maximized.</p>
<p>With reference to Mankiw's explanation, at quantities less than Q*, namely Q1,the consumer's willingness to pay (demand) is higher than the producer's willingness to sell. The consumer is willing to offer a higher price for the same quantity whereas the producer's cost is less. If seen graphically, both the CS and the PS fall.<br />
At quantities higher than Q*, namely Q2, the seller wants to sell at a higher price, and the consumer offers a much lower price. Again, welfare is not maximized and equilibrium is not attained.</p>

CC BY-SA 4.0
2024-09-08T13:58:52.427Z
user1011, thank you very much for your answer!
佐武五郎
CC BY-SA 4.0
2024-09-08T05:25:25.270Z
2024-09-08T05:25:25.270Z
user1011
<p><a href="https://i.sstatic.net/XJeAY2cg.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/XJeAY2cg.png" alt="enter image description here" /></a>
Mankiw wrote as follows:</p>
<blockquote>
<p>But can the social planner raise total economic well-being by increasing or decreasing the quantity of the good? The answer is no, as stated in this third insight about market outcomes:</p>
<ol start="3">
<li>Free markets produce the quantity of goods that maximizes the sum of consumer and producer surplus.</li>
</ol>
<p>Figure 8 illustrates why this is true. To interpret this figure, keep in mind that the demand curve reflects the value to buyers and the supply curve reflects the cost to sellers. At any quantity below the equilibrium level, such as <span class="math-container">$Q_1$</span>, the value to the marginal buyer exceeds the cost to the marginal seller. As a result, increasing the quantity produced and consumed raises total surplus. This continues to
be true until the quantity reaches the equilibrium level. Similarly, at any quantity beyond the equilibrium level, such as <span class="math-container">$Q_2$</span>, the value to the marginal buyer is less than the cost to the marginal seller. In this case, decreasing the quantity raises total surplus, and this continues to be true until quantity falls to the equilibrium level. To maximize total surplus, the social planner would choose the
quantity at which the supply and demand curves intersect.</p>
</blockquote>
<p>Mankiw explained why the market equilibrium maximizes the sum of producer and consumer surplus.<br />
But I cannot understand his explanation.</p>
<p>Mankiw wrote as follows:</p>
<blockquote>
<p>At any quantity below the equilibrium level, such as <span class="math-container">$Q_1$</span>, the value to the marginal buyer exceeds the cost to the marginal seller.</p>
</blockquote>
<p><em><strong>But I think we cannot change the quantity artificially from the equilibrium quantity.</strong></em></p>
<p>I think I understand the following figure:<br />
<a href="https://i.sstatic.net/IYIsifPW.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/IYIsifPW.png" alt="enter image description here" /></a></p>

<supply-and-demand><consumer-surplus><equilibrium><producer-surplus>
The Efficiency of the Equilibrium Quantity (Mankiw)
佐武五郎
# The Efficiency of the Equilibrium Quantity (Mankiw)

(Asked by: username_0 on 2024-09-08)

[![enter image description here](https://i.sstatic.net/XJeAY2cg.png)](https://i.sstatic.net/XJeAY2cg.png)
Mankiw wrote as follows:

> But can the social planner raise total economic well-being by increasing or decreasing the quantity of the good? The answer is no, as stated in this third insight about market outcomes:
>
> 3. Free markets produce the quantity of goods that maximizes the sum of consumer and producer surplus.
>
> Figure 8 illustrates why this is true. To interpret this figure, keep in mind that the demand curve reflects the value to buyers and the supply curve reflects the cost to sellers. At any quantity below the equilibrium level, such as $Q\_1$, the value to the marginal buyer exceeds the cost to the marginal seller. As a result, increasing the quantity produced and consumed raises total surplus. This continues to
> be true until the quantity reaches the equilibrium level. Similarly, at any quantity beyond the equilibrium level, such as $Q\_2$, the value to the marginal buyer is less than the cost to the marginal seller. In this case, decreasing the quantity raises total surplus, and this continues to be true until quantity falls to the equilibrium level. To maximize total surplus, the social planner would choose the
> quantity at which the supply and demand curves intersect.

Mankiw explained why the market equilibrium maximizes the sum of producer and consumer surplus.  
But I cannot understand his explanation.

Mankiw wrote as follows:

> At any quantity below the equilibrium level, such as $Q\_1$, the value to the marginal buyer exceeds the cost to the marginal seller.

***But I think we cannot change the quantity artificially from the equilibrium quantity.***

I think I understand the following figure:  
[![enter image description here](https://i.sstatic.net/IYIsifPW.png)](https://i.sstatic.net/IYIsifPW.png)

**Tags:** supply-and-demand, consumer-surplus, equilibrium, producer-surplus


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## 1 answers

### Answer by username_1 on 2024-09-08. Score: 1 | Accepted answer

The demand curve embodies the consumer's plans to buy at the market price, and these plans are not realised yet. For this reason, it's referred to as the willingness to pay curve. Similarly, the supply curve represents the producer's plan to supply, according to the market price. It is the willingness to sell curve. The area below the demand curve is the consumers' willingness to pay, and the area below the supply curve is the producers' willingness to sell/part with his good. At the equilibrium, the consumer's plans and the producer's plans perfectly align. At that price, the consumer buys all she wants, i.e. Consumer Surplus is maximized [CS= willingness to pay (area below dd curve) - total revenue]. At that same price, the producer sells all he wants, i.e. Producer Surplus is maximized. Hence total surplus, which is CS + PS is maximized and hence at the market equilibrium, welfare is maximized.

With reference to Mankiw's explanation, at quantities less than Q\*, namely Q1,the consumer's willingness to pay (demand) is higher than the producer's willingness to sell. The consumer is willing to offer a higher price for the same quantity whereas the producer's cost is less. If seen graphically, both the CS and the PS fall.  
At quantities higher than Q\*, namely Q2, the seller wants to sell at a higher price, and the consumer offers a much lower price. Again, welfare is not maximized and equilibrium is not attained.

> **Comments:**
> **username_0**: username_1, thank you very much for your answer!  

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