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    Surplus Ideas: Consumer surplus, Producer surplus

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    Use the ideas of consumer surplus and producer surplus to explain why economists say competitive markets are efficient. Why are below- or above-equilibrium levels of output inefficient, according to these two sets of ideas?

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    Consumer surplus:
    When the consumers' utility exceeds the price paid, consumer surplus is generated.

    Producer surplus:
    when producers receive a price greater than marginal cost, ...

    Solution Summary

    Solution explains Consumer surplus and Producer surplus and also why competitive markets are efficient.