(not shown) or E: transferring producer surplus to consumers. Suppose that socie

Question

(not shown) or E: transferring producer surplus to consumers.

Suppose that society cared only about the welfare of consumers so that it wanted to maximize consumer surplus. The government cannot force firms to produce more than the competitive level. Does competition maximize consumer surplus? Why? Competition OA. maximizes consumer surplus by increasing equity. O B. maximizes equity, but not necessarily consumer surplus. C. maximizes consumer surplus with minimum average cost pricing D. maximizes efficiency, but not necessarily consumer surplus. E. maximizes consumer surplus, but is not Pareto efficient. If not, what kind of policy would maximize consumer surplus? It would be possible to maximize consumer surplus by A. reducing government transfer payments. O B. eliminating govemment regulations. O c, simultaneously maximizing producer surplus. 0 D, allowing producers to acquire market power.

Explanation / Answer

(Question 1) Option (D)

If producers sell a quantity below the competitive optimal level, consumer surplus will not be maximized, but efficiency will be.

(Question 2) Option (B)

In a free market laissez-faire economy, both consumer and producer surplus are maximized.

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