Figure 7-20

-Refer to Figure 7-20.The equilibrium allocation of resources is
A) efficient because total surplus is maximized at the equilibrium.
B) efficient because consumer surplus is maximized at the equilibrium.
C) inefficient because consumer surplus is larger than producer surplus at the equilibrium.
D) inefficient because total surplus is maximized when 10 units of output are produced and sold.

Question

Figure 7-20
 
-Refer to Figure 7-20.The equilibrium allocation of resources is
A) efficient because total surplus is maximized at the equilibrium. 
B) efficient because consumer surplus is maximized at the equilibrium. 
C) inefficient because consumer surplus is larger than producer surplus at the equilibrium. 
D) inefficient because total surplus is maximized when 10 units of output are produced and sold.

Quizplus · Accepted Answer

The equilibrium allocation of resources is efficient because total surplus is maximized at the equilibrium. Both consumer surplus and producer surplus are included in the total surplus calculation, therefore maximizing total surplus also maximizes consumer and producer surplus. Therefore, choices B and C can be eliminated. Choice D is incorrect because it suggests a different quantity than the equilibrium, which is where supply and demand intersect and therefore where the market naturally settles.

Figure 7-20 -Refer to Figure 7-20.The Equilibrium Allocation of Resources Is