The social surplus in a market is $50.If another economic agent enters the market such that the marginal cost he incurs is $10 and the marginal benefit he receives from the trade is $5,then which of the following statements is true?
A) The social surplus will remain the same.
B) The social surplus will increase by $5.
C) The social surplus will decrease by $5.
D) The social surplus will increase by $10.

Question

Quizplus · Accepted Answer

When the new economic agent enters the market, the total marginal cost will increase by $10, but the total marginal benefit will only increase by $5. This means that the cost of producing the additional unit exceeds the value that it adds to the market. As a result, the social surplus will decrease by $5.

The Social Surplus in a Market Is $50