ECONOMICS
CONSUMERS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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producer surplus is maximized.
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consumer surplus is maximized.
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total surplus is maximized.
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sellers’ costs are minimized.
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Detailed explanation-1: -An allocation of resources that maximises total surplus is said to be efficient. If an allocation is not efficient, then some of the potential gains from trade among buyers and sellers are not being realised.
Detailed explanation-2: -The higher the total surplus, the more efficient the economy is. Total surplus and thus economic efficiency are maximized at the free market equilibrium quantity. The total surplus would be lower at any quantity other than equilibrium, and so economic efficiency would be worse.
Detailed explanation-3: -When the net benefits of all economic activities are maximized, economists say the allocation of resources is efficient. This concept of efficiency is broader than the notion of efficient production that we encountered when discussing the production possibilities curve.
Detailed explanation-4: -Therefore, the total surplus in a market is the difference between the value to the consumers or buyers and the cost to the sellers or the minimum supply price or the cost of production to the sellers. If the positive value of the total surplus is increased then we can say that the allocation is efficient.