There are four consumers willing to pay the following...

There are four consumers willing to pay the following amounts for haircuts: Gloria: $\$ 35 \quad$ Jay: $\$ 10 \quad$ Claire: $\$ 40 \quad$ Phil: $\$ 25$ There are four haircutting businesses with the following costs: Firm A: $\$ 15$ Firm B: $\$ 30$ Firm $C: \$ 20 \quad$ Firm $D: \$ 10$ Each firm can give at most one haircut. To achieve efficiency, how many haircuts should be given? Which businesses should cut hair and which consumers should have their hair cut? How large is the maximum possible total surplus?

There are four consumers willing to pay the following amounts for haircuts:
Gloria: $\$ 35 \quad$ Jay: $\$ 10 \quad$ Claire: $\$ 40 \quad$ Phil: $\$ 25$
There are four haircutting businesses with the following costs:
Firm A: $\$ 15$ Firm B: $\$ 30$ Firm $C: \$ 20 \quad$ Firm $D: \$ 10$
Each firm can give at most one haircut. To achieve efficiency, how many haircuts should be given? Which businesses should cut hair and which consumers should have their hair cut? How large is the maximum possible total surplus?

Key Concepts

Economic Efficiency

Economic efficiency occurs when resources are allocated in such a way that maximizes total benefits or surplus in the economy. In market transactions, this means that goods and services are distributed among those who value them most, and the costs incurred in providing them are minimized, ensuring that every trade generates a net gain to society.

Consumer's Willingness-to-Pay

This concept represents the highest price a consumer is ready to pay for a good or service. It indicates the personal value a consumer places on obtaining that service and is critical in determining whether a transaction will yield a consumer surplus when compared to the cost of providing the good.

Producer's Costs

Producer costs are the expenses that businesses incur in supplying goods or services. These costs set the minimum price at which firms are willing to offer their products or services, and comparing these costs against consumers' willingness-to-pay is essential for determining whether there is an opportunity for beneficial trades.

Total Surplus

Total surplus is the sum of consumer surplus and producer surplus, representing the overall net benefit generated by market transactions. Maximizing total surplus involves matching consumers with high willingness-to-pay to producers with low costs, ensuring that each trade contributes positively to economic welfare.

Market Matching and Assignment

Market matching refers to the process of pairing buyers and sellers in a way that maximizes efficiency or total surplus. This often involves ranking consumers by their willingness-to-pay and producers by their costs, and then facilitating trades only when the consumer's valuation exceeds the producer's cost, thereby ensuring that each match adds to the net benefit in the market.

Transcript

00:01 For this question, we are giving a table and there are four customers willing to pay a certain amount for aircuts and their four air cut businesses with the following costs.

00:11 So i'm just going to write the consumers in the first side.

00:16 So for the consumers, we have gloria willing to pay $35 for an for a haircut.

00:22 We have jay willing to pay $10 for the air cuts.

00:26 We have claire willing to pay $40 for the air cuts.

00:31 Hair cuts and we have few willing to pay $25 for air cuts now for the businesses that are cutting hair we have firm a willing to charge charging $15 for hair cuts we have firm b charging $30 for air cuts we are from c charging $20 for air cuts and we have firm d charging $10 for air cuts now the question says that each firm can give our most one record so one firm to a customer that's how we go so the question says to achieve efficiency how many air cuts should be given and which business should cut hair and which consumers should have their haircuts so that's what i'm trying to find out to achieve efficiency so efficiency is when you have like have the most favorable um results so in my opinion i would say businesses are should cut air is from a c and d because these firms have low cost and the consumer for these firms are willing to pay way greater than the cost of the firm.

01:35 So if look at firm a, the firm is charging $15.

01:40 The employer is willing to pay more than that, far more than that.

01:44 Firm b is charging i, the consumer is willing to pay less than that.

01:48 So that doesn't go, like, it doesn't go.

01:51 The second, the third one, the firm is willing to charge $20.

01:55 The person is going to pay more than that...

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