ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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marginal benefit exceeds marginal cost by the greatest amount.
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consumer surplus exceeds producer surplus by the greatest amount.
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the combined amounts of consumer surplus and producer surplus are maximized.
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the areas of consumer and producer surplus are equal.
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Detailed explanation-1: -Allocative efficiency occurs only at that output where: marginal benefit exceeds marginal cost by the greatest amount. consumer surplus exceeds producer surplus by the greatest amount. the combined amounts of consumer surplus and producer surplus are maximized.
Detailed explanation-2: -A market producing at equilibrium is achieving allocative efficiency, meaning that resource are allocated in the best possible manner to maximize total welfare among consumers and producers.
Detailed explanation-3: -When you add both the consumer and producer surplus, you get the total surplus, also known as total welfare or community surplus. It is used to determine the well-being of the market. When all factors are constant, in a perfect market state, an equilibrium is achieved.
Detailed explanation-4: -The sum of consumer surplus and producer surplus measures the net benefit to society of any level of economic activity. Net benefit is maximized when production and consumption are carried out at the level where the demand and supply curves intersect.
Detailed explanation-5: -Allocative efficiency occurs where the collective sum of consumer and producer surplus is at a maximum.