Which of the following statements best describes the relationship between economic surplus and the growth of the economy?

• A. Economic surplus has no impact on the growth of the economy.
• B. An increase in economic surplus generally indicates greater efficiency and potential for economic growth.
• C. Economic surplus only affects consumer welfare, not the overall economy.
• D. A decrease in economic surplus always leads to higher economic growth.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of economic surplus, which is the sum of consumer surplus and producer surplus. It represents the total net benefit to society from the production and consumption of goods and services.
2. Step 2: Recognize that economic surplus is a measure of efficiency in the market. When economic surplus increases, it means resources are being allocated more efficiently, leading to higher total benefits for both consumers and producers.
3. Step 3: Connect the increase in economic surplus to economic growth by noting that greater efficiency allows for more output or better use of resources, which can contribute to the expansion of the economy over time.
4. Step 4: Evaluate the incorrect statements by considering that economic surplus does impact the overall economy, not just consumer welfare, and that a decrease in economic surplus does not necessarily lead to higher growth—it often signals inefficiency.
5. Step 5: Conclude that the statement 'An increase in economic surplus generally indicates greater efficiency and potential for economic growth' best describes the relationship between economic surplus and economic growth.