When marginal benefit exceeds marginal cost in a market,
A) only consumer surplus is reduced.
B) only producer surplus is reduced.
C) consumer surplus and producer surplus are not affected compared to when production is such that marginal cost equals marginal benefit.
D) the deadweight loss is negative.
E) None of the above answers is correct.

Question

Quizplus · Accepted Answer

When marginal benefit exceeds marginal cost, it indicates that there is still value to be gained from increasing production or consumption. This situation does not inherently reduce consumer or producer surplus, nor does it imply a negative deadweight loss. Instead, it suggests that the market could potentially move towards an equilibrium where marginal cost equals marginal benefit, maximizing total surplus.

When Marginal Benefit Exceeds Marginal Cost in a Market