When will consumers' surplus overstate the actual gains received by consumers?
A) When allocation decisions are not made on the basis of price.
B) When the commodity is not equally divided among consumers.
C) When all consumers place the same marginal value on the good.
D) When the distribution of goods is Pareto optimal.

Question

Quizplus · Accepted Answer

Consumers' surplus overstates the actual gains received by consumers when allocation decisions are not made on the basis of price. This is because consumers' surplus is calculated by assuming that all consumers are paying the same price for the good, even though this may not be the case in reality. Therefore, if allocation decisions are not based on price, consumers' surplus will overstate the actual gains received by consumers.

When Will Consumers' Surplus Overstate the Actual Gains Received by Consumers