Figure 4-4
-Refer to Figure 4-4.The figure above represents the market for iced tea.Assume that this is a competitive market.At a price of $1

Question

Figure 4-4 
-Refer to Figure 4-4.The figure above represents the market for iced tea.Assume that this is a competitive market.At a price of $1

Quizplus · Accepted Answer

At a price of $1, the quantity demanded is 20,000 and the quantity supplied is 10,000. This means that the marginal benefit of the last unit consumed is greater than the marginal cost of producing it. However, there are potential gains from trade that are not being realized because output is inefficiently low. If the price were to increase to a higher level, such as $3, then the quantity supplied would increase to 30,000 and the quantity demanded would decrease to 15,000. At this price, the marginal cost of producing iced tea would be equal to the marginal benefit of consuming it, which would lead to an efficient outcome. Therefore, option A is correct because the marginal cost of producing iced tea is less than the marginal benefit, indicating that output is inefficiently low at the current price.

Figure 4-4 -Refer to Figure 4-4.The Figure Above Represents the Market for the Market