This chapter introduced the basic tools of welfare economics consumer and producer surplus and used them to evaluate the efficiency of free markets. We showed that the forces of supply and demand allocate resources efficiency. That is even though each buyer and seller in a market is concerned only about his or her own welfare they are together led by an invisible hand to an equilibrium that maximizes the total benefits to buyers and sellers. A word of warning is in order. To conclude that markets are efficient we made several assumptions about how markets work. When these assumptions do not hold our conclusion that the market equilibrium is efficient may no longer be true. As we close this chapter let,s consider briefly two of the most important of these assumptions. First our analysis assumed that markets are perfectly competitive. In the world however competition is sometimes far perfect. In some markets a single buyer or seller (or a small group of them) may ...