High School

Complete the following statement:

Two ways to calculate economic surplus are ________ and ________.

A. Consumer surplus minus producer surplus; marginal benefit plus marginal cost
B. Marginal benefit minus marginal cost; consumer surplus plus producer surplus
C. Marginal benefit minus price; marginal cost minus price
D. Price minus marginal benefit; price minus marginal cost

Answer :

The two ways to calculate economic surplus are consumer surplus minus producer surplus, and marginal benefit plus marginal cost . Consumer surplus is the difference between the amount that a consumer is willing to pay for a good or service and the amount they actually pay. Producer surplus is the difference between the amount that a producer is willing to supply a good or service for and the amount they actually receive.

Marginal benefit is the additional benefit received from consuming an additional unit of a good or service, while marginal cost is the additional cost incurred from producing an additional unit of a good or service. Both consumer surplus and producer surplus are important components in calculating economic surplus, as is the difference between the marginal benefit and marginal cost. By adding and subtracting these components, economic surplus can be accurately calculated.

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Final answer:

Economic surplus can be calculated either by subtracting producer surplus from consumer surplus, or by adding consumer surplus to producer surplus. These methods measure the total benefits to society and are maximized at market equilibrium. Deadweight loss occurs when an economy is not at this efficient output level.

Explanation:

Two correct ways to calculate economic surplus are: The difference between consumer surplus and producer surplus, and the sum of consumer surplus and producer surplus. Consumer surplus is the gap between the price that consumers are willing to pay and the market equilibrium price. Producer surplus is the gap between the market price and the lowest price at which producers are willing to sell their product. Total economic surplus, also known as social surplus, reflects the total net benefits to society and is maximized at market equilibrium where demand equals supply.

Any deviation from this equilibrium quantity and price results in a deadweight loss, indicating that the economy is not operating at maximum efficiency and creating losses for both consumers and producers in terms of foregone surplus.