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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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Solution Summary

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

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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, ...

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