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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, 2 (p 42)) use the max surplus method, but I wonder why.

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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.

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    $\begingroup$ Absolutely correct.. but it doesn't answer the question.. when (including eventually "technical" reasons) one approach is preferable over the other ? $\endgroup$ – Antonello Mar 7 '17 at 7:22
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    $\begingroup$ 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. $\endgroup$ – Amit Mar 7 '17 at 8:21

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