ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Social efficiency
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Profit maxmization
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Community surplus
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Marginal social cost
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Marginal social benefit
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Detailed explanation-1: -Recall consumer surplus is the difference between what consumers are willing to pay and what they actually pay, whereas producer surplus is the difference between what the producer is paid and the marginal costs of production.
Detailed explanation-2: -The sum of consumer surplus and producer surplus is social surplus, also referred to as economic surplus.
Detailed explanation-3: -Calculating Consumer Surplus While taking into consideration the demand and supply curves, the formula for consumer surplus is CS = ½ (base) (height). In our example, CS = ½ (40) (70-50) = 400.
Detailed explanation-4: -Producer surplus = Market price – Producer’s Minimum Acceptable Price. Alternatively, it is also calculated as follows: Producer surplus = Total Revenue – Production Cost.