According to the First Fundamental Welfare Theorem, when a competitive market equilibrates, the values of consumer surplus and producer surplus are _______________.

Question

According to the First Fundamental Welfare Theorem, when a competitive market equilibrates, the values of consumer surplus and producer surplus are _______________.

a. minimized

b.maximized

c.reduced

d.go to zero

Answer 1

For Consumer, the amount they are willing to pay lees what they actually pay (consume surplus is maximized. For firms the difference between what producers receive and the minimum amount they need to receive (producer surplus) is also

maximized