Figure 7-11. On the graph below, Q represents the quantity of the good and P represents the good's price.

-Refer to Figure 7-11.The equilibrium allocation of resources is
A)efficient because total surplus is maximized at the equilibrium.
B)efficient because consumer surplus is maximized at the equilibrium.
C)inefficient because consumer surplus is larger than producer surplus at the equilibrium.
D)inefficient because total surplus is maximized when 10 units of output are produced and sold.

Question

Figure 7-11. On the graph below, Q represents the quantity of the good and P represents the good's price.
 
-Refer to Figure 7-11.The equilibrium allocation of resources is
A)efficient because total surplus is maximized at the equilibrium. 
B)efficient because consumer surplus is maximized at the equilibrium. 
C)inefficient because consumer surplus is larger than producer surplus at the equilibrium. 
D)inefficient because total surplus is maximized when 10 units of output are produced and sold.

Quizplus · Accepted Answer

The equilibrium allocation of resources is efficient because total surplus is maximized at the equilibrium. This means that both consumer and producer surplus are maximized and there is no deadweight loss. Any output level other than the equilibrium would result in a lower total surplus.