Suppose the magnitude of consumer surplus is larger than the magnitude of producer surplus. Which of the following would be true?
A) Market price would tend to either remain below the predicted equilibrium price or converge to equilibrium from below.
B) Market price would tend to either remain above the predicted equilibrium price or converge to equilibrium from above.
C) Market prices would tend to remain above the predicted equilibrium price due to tacit collusion and price signalling by the sellers.
D) Market prices would converge smoothly to the predicted equilibrium price.

Question

Quizplus · Accepted Answer

When consumer surplus is larger than producer surplus, it often indicates that the market price is below the equilibrium price. This situation arises because consumers are getting more benefit (paying less) for the goods than what they would at equilibrium, leading to a larger consumer surplus. Over time, market forces would typically cause the price to either remain below or converge to the equilibrium price from below as demand increases or supply decreases to reach equilibrium.

Suppose the Magnitude of Consumer Surplus Is Larger Than the Magnitude