Final answer:
The optimal quantity of a public good to maximize social welfare occurs where the social benefit, reflected by price, equals the social cost, indicated by marginal cost. This aligns with the principles of efficiency in the demand and supply model, signaling the maximal benefits from scarce resources and potential gains from trade.
Step-by-step explanation:
To maximize social welfare, the optimal quantity of a public good to provide is where the social benefit equals the social cost. In a perfectly competitive market, this is achieved when the price of the good is equal to the marginal cost of production. The price reflects the social benefit because it is what buyers are willing to pay, showing the good's value to them. Similarly, the marginal cost represents the broader social cost of producing the good. When these two are equal, the social benefits are aligned with the social costs, thus maximizing social welfare.
Considering the efficiency in the demand and supply model, it is understood that optimal social welfare is reached when the economy extracts the maximum possible benefits from its scarce resources, and all potential gains from trade are realized. This includes achieving the optimal amount of each good and service being produced and consumed, which is marked by the equilibrium in the market.
Furthermore, efficiency is also characterized by consumer surplus, producer surplus, and social surplus. Looking at consumer surplus, for example in a market for tablet computers, if the equilibrium price is at a point where some consumers would have been willing to pay more, it indicates that these consumers are getting more benefit than what they are paying for, which contributes to the overall social surplus.