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3 October, 06:11

Assume the world market for oil is competitive and that the marginal cost of producing (extracting and bringing to market) another barrel of oil is $82.00 and the marginal benefit is $81.20. If one more barrel of oil is produced and consumed, how will economic surplus change?

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  1. 3 October, 06:18
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    The economic surplus will decrease

    Explanation:

    The economic surplus, also called the marginal social benefit, consists in the gain of society as a whole by buying a product at a price below the average value to which society is willing to pay. For example, if the price of a barrel of oil is $ 82 and the company is willing to pay a price of $ 80, the economic surplus will be $ 2.

    Marginal cost, in turn, is the cost of producing one unit for more than one particular good. When the economic surplus is positive, that is, when the social benefit is greater than the marginal cost, society will be better off. In contrast, when the marginal cost of production is greater than the social benefit, society will be worse off because the marginal benefit has declined. This is what happens when the marginal cost of oil production ($ 82) is greater than the marginal benefit ($ 81.20).
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