Chapter 11R, Problem 22MCQ

To determine

The correct option for given situation where consumer surplus, producer surplus and deadweight losses for perfect competition is defined.

Answer to Problem 22MCQ

Option b is correct answer.

Explanation of Solution

Explanation for correct option:

b.

In perfect competition, consumer surplus is more as the prices of the product are less. If prices are lower than it will increase the consumer surplus. Producer surplus is more in monopoly whereas deadweight is also more in monopoly. Deadweight loss refers to the loss of value due to the induction of underproduction. Therefore, option b is correct.

Explanation for incorrect options:

a.

Since, in perfect competition there is less difference between the market price and the cost of production due to which producers’ surplus is less as compared to monopoly. Therefore, option a is incorrect.

c.

In perfect competition deadweight loss is less as compared to the monopoly. Also, consumer surplus is more as the market price is lower. Therefore, option c is incorrect.

d.

In perfect competition, products are identical due which its market price is less. This results in more consumer surplus, less producer surplus and less deadweight loss. Therefore, option d is incorrect.

Economics Concept Introduction

Consumer surplus: Consumer surplus refers to the difference between the amount that consumers are willing to pay and the amount that they actually pay for the product.

Producer surplus: It refers to the difference between the market price and the minimum price that producers are willing to accept.