Economic efficiency

A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

Question

Cordell Wilkerson

Business

13 October, 21:46

Economic efficiency

A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

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Answers (1)

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Apollo · Answer 1

Yes, economic efficiency would be achieved.

Explanation:

Economic efficiency occurs when we can not make one person better off without making someone else worse off (Pareto Efficiency/Optimality). In a competitive market, when the marginal benefit curve (demand curve) is equal to the marginal cost curve (supply curve) and by the way of it an economic surplus (consumer and producer surplus are maximised) is reached, an equilibrium price is set and that's how economic efficiency is achieved.

Inefficiency occurs if competitive equilibrium is not achieved. Suppose:

If the price is lower and marginal benefit (demand) is greater than marginal cost (supply) - Inefficiency in the form of shortage occurs. Consumer surplus is seen to be at maximum.

If the price is higher, the marginal benefit (demand) dampened than marginal cost (supply) - inefficiency in the form of surplus occurs. Producer surplus is seen to be at increase.

Economic efficiencyA market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

Economic efficiency

A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.