Which of the following statements is true? Producing less than equilibrium leave

Question

Which of the following statements is true?

Producing less than equilibrium leaves unrealized producer and consumer surplus, and producing more than equilibrium reduces the consumer surplus.

Producing more or less than equilibrium results in negative profits, which is inefficient.

Producing more than equilibrium leaves unrealized producer and consumer surplus, and producing less than equilibrium reduces the producer surplus.

Producing less than equilibrium leaves unrealized producer and consumer surplus, and producing more than equilibrium reduces the producer surplus.

Explanation / Answer

Producing less than equilibrium leaves unrealized producer and consumer surplus, and producing more than equilibrium reduces the consumer surplus, this statement is true, because at output below the equilibrium level, amount of consumer surplus and producer surplus is less than the optimal level, that is there is more surplus a consumer and a producer can get.

But in case of over production without extra demand by the consumer leads to decrease in consumer surplus this is because , now at higher price , the difference between what consumers ability to pay and they actually pay for that good decreases and as a result consumer surplus decreases and this leads to a deadweight loss in the economy.

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