Assume the world market for bananas is competitive and that the marginal cost of producing a case of bananas is $12.50 and the marginal benefit is $15. If one more case of bananas is produced and consumed, how will the economic surplus change? To answer this question, let’s first discuss what we mean by economic surplus. Economic surplus is the sum of consumer surplus and producer surplus. Consumer surplus is the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays. In other words, consumer surplus measures the benefit to consumers. Producer surplus is the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives. This means that producer surplus measures the benefit to producers from participating in a market (in this case, the market for bananas). This question also mentions a few other terms we need to understand. The marginal benefit is the ...
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