If a market produces a level of output below the competitive equilibrium, thenGroup of answer choicessocial welfare is not maximised.consumer surplus might still be maximised.the actual price will be below the equilibrium price.social welfare might still be enhanced if a price ceiling keeps price below the competitive price.
Question
If a market produces a level of output below the competitive equilibrium, thenGroup of answer choicessocial welfare is not maximised.consumer surplus might still be maximised.the actual price will be below the equilibrium price.social welfare might still be enhanced if a price ceiling keeps price below the competitive price.
Solution
If a market produces a level of output below the competitive equilibrium, then social welfare is not maximised.
Here's why:
-
Competitive equilibrium is the point where the quantity of goods supplied equals the quantity of goods demanded. This is also the point where social welfare, which includes both consumer and producer surplus, is maximised.
-
If the market is producing below this level, it means that there are some potential trades (between willing buyers and sellers) that are not happening. This is a loss of social welfare because these are trades that would have added to the total surplus in the economy.
-
Consumer surplus might still be maximised only if the decrease in quantity is offset by a large enough decrease in price. However, this is unlikely because in most cases, a decrease in quantity supplied leads to an increase in price.
-
The actual price will not necessarily be below the equilibrium price. In fact, it could be higher if the decrease in quantity supplied leads to an increase in price.
-
Social welfare might still be enhanced if a price ceiling keeps price below the competitive price only if the loss in producer surplus is less than the gain in consumer surplus. However, this
Similar Questions
A competitive market maximises social welfare because in a competitive marketGroup of answer choicesprofits are zero.price equals marginal cost of the last unit produced.price equals average cost of the last unit produced.there is free entry and exit.
If in a market the last unit of output was sold at a price higher than marginal costGroup of answer choicesproducers are better off producing more.consumers are better off if less of the product is sold.social welfare is not maximised.the unit increased total profit.
In the market equilibrium, a single-price monopolist: [Tick all that apply][Note: selecting wrong answers means you lose points again. So choose carefully!]Group of answer choicesalways generates lower total surplus than if the market was perfectly competitiverestricts output to increase profitscharges a price higher than the marginal costalways produces at an efficient scaleneeds to know the precise willingness to pay of each customer
If the demand for a product increases, then we would expect equilibrium priceGroup of answer choicesto increase and equilibrium quantity to decrease.to decrease and equilibrium quantity to increase.and equilibrium quantity both to increase.and equilibrium quantity both to decrease.
Which one is true? Group of answer choicesExcess demand occurs when price is below the equilibrium price.Total surplus is not maximised in the equilibrium of a perfectly competitive market.Pareto efficient outcomes are always fair.When there is excess supply, prices will increase.None of the other answers are correct.
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.