Use the following to answer questions:
Figure: Price and Quantity 3
-(Figure: Price and Quantity 3) Which of the following statements is TRUE at a market's equilibrium price and quantity?
I. Consumer surplus plus producer surplus is maximized.
II. Goods are purchased by buyers who value them the most.
III. The lowest-cost producers manufacture the goods.
IV. The gains from trade are minimized.
A) I and IV only
B) II and III only
C) I, II, and III only
D) I, II, III, and IV

Question

Use the following to answer questions:
Figure: Price and Quantity 3 
-(Figure: Price and Quantity 3) Which of the following statements is TRUE at a market's equilibrium price and quantity?
I. Consumer surplus plus producer surplus is maximized.
II. Goods are purchased by buyers who value them the most.
III. The lowest-cost producers manufacture the goods.
IV. The gains from trade are minimized.
A) I and IV only 
B) II and III only 
C) I, II, and III only 
D) I, II, III, and IV

Quizplus · Accepted Answer

At a market's equilibrium price and quantity, consumer surplus and producer surplus are maximized (I), because the quantity demanded by consumers equals the quantity produced by suppliers, and the price is neither too high for consumers nor too low for producers. Goods are purchased by buyers who value them the most (II) because they are willing to pay the market price, and the sellers who can produce at the lowest cost will supply the goods (III) to earn the highest possible profit. The gains from trade are maximized (not minimized) because both buyers and sellers can exchange the goods at a mutually beneficial price, which is the market equilibrium price. Therefore, statement IV is false.

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