Question

When the market is in equilibrium, the price that consumers pay and that producers receive exactly balances the ______ benefit and marginal cost of consuming and producing a good or service.

1) total
2) marginal
3) average
4) maximum

Answer 1

In market equilibrium, the price balances the marginal benefit and marginal cost, aligning consumer willingness to pay with the producer's cost of production. This balance ensures maximum social surplus and efficient resource allocation. The correct answer is option: 2) marginal

Step-by-step explanation:

When the market is in equilibrium, the price that consumers pay and that producers receive exactly balances the marginal benefit and marginal cost of consuming and producing a good or service. The correct answer is 2) marginal. In a perfectly competitive market, efficiency in the demand and supply model means that the economy is extracting as much benefit as possible from its scarce resources, with all the possible gains from trade being achieved. The equilibrium price equates the social benefit, as indicated by the consumer's willingness to pay, with the social cost of producing the good, which is the marginal cost of production.

The Consumer Surplus, Producer Surplus, and Social Surplus are maximized when the market price equals the marginal cost of production. This balance ensures that the goods and services produced bring the greatest overall benefit to society, as the social benefit from consumption is equal to the social cost of production.