Market Efficiency, Consumer and Producer Surplus from an Islamic Economics Perspective: An Analysis of Price Equity and Welfare (Falah)

Abstract

Total economic surplus was generally used to assess market efficiency but did not establish whether economic benefits were distributed justly. This article examined consumer and producer surplus through the concepts of price justice and falah in Islamic economics. A qualitative library-based approach combined descriptive, analytical, and comparative readings of conventional and Islamic economic literature. The analysis distinguished allocative efficiency from the legitimacy of price formation and the distribution of economic gains. In a theoretical market illustration, competitive equilibrium generated consumer surplus of 450 and producer surplus of 337.5, producing total surplus of 787.5. A binding price ceiling increased consumer surplus to 550 but reduced producer surplus to 150, leaving total surplus of 700 and deadweight loss of 87.5 under the stated allocation assumption. Islamic economic reasoning assessed market outcomes through informed consent, the absence of distortions such as ihtikar and tadlis, and the objectives of maslahah and falah. Competitive equilibrium could align with just pricing when transactions remained legitimate, whereas corrective intervention required demonstrated distortion, proportionality, and accountability. The study proposed an integrated framework comprising surplus-based efficiency, price equity, and comprehensive welfare. Its conceptual findings require rigorous empirical validation in specific commodity markets using observable pricing, distributional, and welfare indicators.