<p>Market Equilibrium occurs when the difference between demand and supply is minimized. Equilibrium price and quantity is determined by solving this problem.</p>

<p>Surplus Maximization (or efficiency) is a property that we would want equilibrium to have. First Welfare Theorem says that in competitive markets (in the absence of externalities) market equilibrium is surplus maximizing. In standard demand-supply framework, solving for equilibrium and efficiency yields identical outcomes, and that is why these methods are used interchangeably.</p>

CC BY-SA 3.0
2017-03-07T07:22:08.817Z
Absolutely correct.. but it doesn't answer the question.. when (including eventually "technical" reasons) one approach is preferable over the other ?
Antonello
CC BY-SA 3.0
2017-03-07T08:21:41.460Z
Surplus maximization is solving a single optimization problem at the social level whereas finding market equilibrium requires solving multiple optimization problems at the individual level. Solving a single problem can be helpful and saves a lot of time because many terms (like the ones that appears as revenue for some, and the cost for some) gets cancelled when aggregating the objectives.
Amit
CC BY-SA 3.0
2017-03-07T01:05:48.003Z
2017-03-07T01:23:08.740Z
2017-03-07T01:23:08.740Z
Amit
<p>Two alternative approaches to compute a market equilibrium (in static analysis) are either to minimize the differences (either using abs() or a quadratic diff) between supply-demand quantities and prices in a given market or maximise the total surplus.</p>

<p>Which are the advantages of these two approaches and when to prefer one over the other?</p>

<p>I noticed that many partial equilibrium models (e.g. <a href="http://www.efi.int/files/attachments/publications/ir_15.pdf" rel="nofollow noreferrer">1</a>, <a href="https://books.google.fr/books?id=7jnmbKHgQH4C&amp;pg=PA9&amp;lpg=PA9&amp;dq=buongiorno+forest+partial+equilibrium+model&amp;source=bl&amp;ots=9VYhnQPRRV&amp;sig=L8Ce1RzJLz6w9AW2q0ct3iMkIDw&amp;hl=it&amp;sa=X&amp;ved=0ahUKEwil356LlsLSAhVB2hQKHTbLDgwQ6AEIODAD#v=onepage&amp;q=buongiorno%20forest%20partial%20equilibrium%20model&amp;f=false" rel="nofollow noreferrer">2 (p 42)</a>) use the max surplus method, but I wonder why.</p>

<markets><competitive-equilibrium><surplus>
When to prefer maximisation of surplus and when instead to prefer minimising differences in price and q to find market equilibrium?
Antonello
# When to prefer maximisation of surplus and when instead to prefer minimising differences in price and q to find market equilibrium?

(Asked by: username_0 on 2017-03-06)

Two alternative approaches to compute a market equilibrium (in static analysis) are either to minimize the differences (either using abs() or a quadratic diff) between supply-demand quantities and prices in a given market or maximise the total surplus.

Which are the advantages of these two approaches and when to prefer one over the other?

I noticed that many partial equilibrium models (e.g. [1](http://www.efi.int/files/attachments/publications/ir_15.pdf), [2 (p 42)](https://books.google.fr/books?id=7jnmbKHgQH4C&pg=PA9&lpg=PA9&dq=buongiorno+forest+partial+equilibrium+model&source=bl&ots=9VYhnQPRRV&sig=L8Ce1RzJLz6w9AW2q0ct3iMkIDw&hl=it&sa=X&ved=0ahUKEwil356LlsLSAhVB2hQKHTbLDgwQ6AEIODAD#v=onepage&q=buongiorno%20forest%20partial%20equilibrium%20model&f=false)) use the max surplus method, but I wonder why.

**Tags:** markets, competitive-equilibrium, surplus


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## 1 answers

### Answer by username_1 on 2017-03-07. Score: 1

Market Equilibrium occurs when the difference between demand and supply is minimized. Equilibrium price and quantity is determined by solving this problem.

Surplus Maximization (or efficiency) is a property that we would want equilibrium to have. First Welfare Theorem says that in competitive markets (in the absence of externalities) market equilibrium is surplus maximizing. In standard demand-supply framework, solving for equilibrium and efficiency yields identical outcomes, and that is why these methods are used interchangeably.

> **Comments:**
> **username_0**: Absolutely correct.. but it doesn't answer the question.. when (including eventually "technical" reasons) one approach is preferable over the other ?  
> **username_1**: Surplus maximization is solving a single optimization problem at the social level whereas finding market equilibrium requires solving multiple optimization problems at the individual level. Solving a single problem can be helpful and saves a lot of time because many terms (like the ones that appears as revenue for some, and the cost for some) gets cancelled when aggregating the objectives.  

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