The term "Efficiency losses" refers to:
A)the producer loss due to the high cost of production.
B)the reductions of combined consumer and producer surplus associated with underproduction or overproduction of a product.
C)the consumer surplus minus the producer surplus.
D)the sum of consumer and producer surplus.

Question

Quizplus · Accepted Answer

Efficiency losses refer to the reductions of combined consumer and producer surplus associated with underproduction or overproduction of a product. This occurs when the production level is not at the point of allocative efficiency, where marginal social benefit equals marginal social cost. This results in a loss of social welfare as there are potential gains that could have been made if the market was producing at the allocatively efficient level.

The Term "Efficiency Losses" Refers To