When a market is in equilibrium and the marginal consumer values a commodity at less than the social cost of producing it, which of the following are true?
(i) at market equilibrium the demand curve lies below the social cost curve
(ii) reducing production to a level below the equilibrium level could possibly raise total economic wellbeing
(iii) the equilibrium price is higher than necessary to insure maximum economic wellbeing
A)(i) and (ii) only
B)(i) and (iii) only
C)(ii) and (iii) only
D)(i), (ii) and (iii)

Question

Quizplus · Accepted Answer

(i) is true because if the marginal consumer values the commodity less than the social cost, it implies that the demand curve (reflecting consumer valuation) is below the social cost curve at the equilibrium quantity. (ii) is true because reducing production to align with the point where consumer valuation equals social cost can eliminate the production of units that cost more to society than they are worth to consumers, thus potentially raising total economic wellbeing. (iii) is not necessarily true; the equilibrium price being higher than necessary for maximum economic wellbeing is not directly implied by the marginal consumer valuing the commodity less than the social cost.

When a Market Is in Equilibrium and the Marginal Consumer