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Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
Edition 12ISBN: 978-1133189022Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
Edition 12ISBN: 978-1133189022 Exercise 3
How does the approach to economic efficiency taken in Chapter 9 relate to the one taken here? How is the possible inefficiency in Figure related to that in Figure ? 
At the competitive equilibrium (Q*), the sum of consumer surplus (shaded dark) and producer surplus (shaded light) is maximized. For an output level less than Q*, say Q1, there is a deadweight loss of consumer and producer surplus given by area FEG.
In this economy, the production possibility frontier represents those combinations of X and Y that can be produced. Every point on the frontier is efficient in a technical sense. However, only the output combination at point E is a true utility maximum for the typical person. Only this point represents an economically efficient allocation of resources.
At the competitive equilibrium (Q*), the sum of consumer surplus (shaded dark) and producer surplus (shaded light) is maximized. For an output level less than Q*, say Q1, there is a deadweight loss of consumer and producer surplus given by area FEG.
In this economy, the production possibility frontier represents those combinations of X and Y that can be produced. Every point on the frontier is efficient in a technical sense. However, only the output combination at point E is a true utility maximum for the typical person. Only this point represents an economically efficient allocation of resources.
Explanation
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Welfare is related to wellbeing of peopl...
Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
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