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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

When a market is in equilibrium, the buyers are those with the _______ willingness to pay and the sellers are those with the _________ costs.

a. highest, highest

b. highest, lowest

c. lowest, highest

d. lowest, lowest

To determine
The willingness to pay and cost during the equilibrium.

Explanation

The equilibrium price is determined by the demand for the coat and the supply of coat normally. The consumer surplus can be explained as the difference between the highest price that the consumer is willing to pay and the actual price that the consumer pays. The difference between these two prices is known as the surplus to the consumer. The producer surplus is the difference between the minimum willing to accept price by the seller and the actual price that the seller receives for the commodity.

When the economy is in its equilibrium, the price will be determined at the intersection of the demand curve and the supply curve of the economy. There will be no discrepancy between the price paid by the buyer and the price received by the consumer. Thus, the difference between the maximum willing to pay and the actual paying price will be the highest. Similarly, the difference between the minimum willing to accept and the actually receiving price by the seller will be its maximum. Thus, when the economy is in its equilibrium, the consumers will be those with the highest willingness to pay and the sellers will be those with lowest costs.

Option (b):

The equilibrium in the economy brings us the condition that the willingness to pay by the buyers will be the highest and the cost by the producers will be the lowest under the equilibrium. Since, option 'b' explains the same, option 'b' is correct.

Option (a):

The equilibrium in the economy brings us the condition that the willingness to pay by the buyers will be the highest and the cost by the producers will be the lowest under the equilibrium...

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