Question

How does economic efficiency relate to the gains of consumers and producers? a. It a market economy, when the demand for a good increases, its price will be efficient, which will motivate consumers to search for substitutes and cut back on additional purchases of the good.b. in a market economy, when the demand for a good increases, its price will rise, which will motivate producers to supply more of the good.c. The equilibrium reached by a market satisfies economic efficiency and the difference between consumer and producer surplus is minimized d. The equilibrium reached by a market satisfies economic efficiency, and the total gains from trade represented by the combined area of consumer and producer surplus are maximized

Answer 1

Answer: Option (D) is correct.

Explanation:

The economic efficiency is achieved at a point where demand curve and supply curve intersects each other. This point is known as market equilibrium. The area under the demand curve and above the equilibrium price level is known as consumer surplus.

The area above the supply curve and under the equilibrium price level is known as producer surplus.

Hence, the combine area of consumer surplus and producer surplus have to maximized to have a economic efficiency in an economy.