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Consumer surplus is shown graphically as the area:
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5. Consumer and Producer Surplus; Price Ceilings and Price Floors
Willingness to Pay and Consumer Surplus
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At the equilibrium quantity, marginal benefit is:
A
greater than marginal cost
B
equal to consumer surplus
C
less than marginal cost
D
equal to marginal cost
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Recall the definition of market equilibrium: it occurs where the quantity demanded equals the quantity supplied.
Understand that at equilibrium, the marginal benefit (MB) to consumers from consuming one more unit equals the marginal cost (MC) to producers of producing that unit.
Express this relationship mathematically as: \(\text{MB} = \text{MC}\) at the equilibrium quantity.
Recognize that consumer surplus is the difference between what consumers are willing to pay (marginal benefit) and what they actually pay (price), so it is not equal to marginal benefit itself.
Conclude that at equilibrium, marginal benefit is neither greater nor less than marginal cost, but exactly equal to it, ensuring efficient allocation of resources.
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