Figure 4-6

Figure 4-6 shows the market for granola.The market is initially in equilibrium at a price of P₁ and a quantity of Q₁.Now suppose producers decide to cut output to Q₂ in order to raise the price to P₂.
-Refer to Figure 4-6.At the equilibrium price of P₁,consumers are willing to buy the Q₁ pounds of granola.Is this an economically efficient quantity?

Question

Figure 4-6
  
Figure 4-6 shows the market for granola.The market is initially in equilibrium at a price of P₁ and a quantity of Q₁.Now suppose producers decide to cut output to Q₂ in order to raise the price to P₂.
-Refer to Figure 4-6.At the equilibrium price of P₁,consumers are willing to buy the Q₁ pounds of granola.Is this an economically efficient quantity?

Quizplus · Accepted Answer

At the equilibrium price of P₁, the market is producing Q₁, which is the quantity where the demand curve intersects with the supply curve. This is the economically efficient quantity because it is the point where the marginal benefit (as reflected by the demand curve) equals the marginal cost (as reflected by the supply curve). Therefore, choice C – "Yes, because P₁ is the price where marginal benefit equals marginal cost" – is the correct answer.

Figure 4-6 Figure 4-6 Shows the Market for Granola.The Market Is Initially