3. Consider the supply and demand graph below to answer three questions: (a) Use a letter to identify the area of maximum consumer surplus; (b) Use a letter to identify the area of maximum producer surplus; (c) Why is the output level shown by the vertical dashed line one that is allocatively efficient from a marginal cost and marginal benefit perspective?

3. Consider the supply and demand graph below to answer three questions: (a) Use a letter to identify the area of maximum consumer surplus; (b) Use a letter to identify the area of maximum producer surplus; (c) Why is the output level shown by the vertical dashed line one that is allocatively efficient from a marginal cost and marginal benefit perspective?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Zone Use the ideas of consumer surplus and producer surplus to explain why economists say competitive markets are efficient. Why are below- or above-equilibrium levels of output inefficient, according to these two sets of ideas? When the consumers' utility goes beyond, goes below) the price paid, consumer surplus is generated. Likewise, when producers receive a price (greater, smaller ) than marginal cost, producer surplus is created. By producing up to the point where MB = MC, the maximum potential consumer surplus (CS) and producer surplus (PS) is generated. Producing (more. less ) than the equilibrium level means that potential surplus is left unrealized (underproduction). Overproduction subtracts from the surplus because society values the use of the additional resources in other pursuits more than it values them in consumption of that good.
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Q1: Find equlibrium price and quantity, CS, PS and social surplus