A result of welfare economics is that the equilibrium price of a product is considered to be the best price
because it
a. maximizes total revenue for firms and maximizes the quantity supplied of the product.
b. maximizes the combined welfare of buyers and sellers.
c. minimizes costs and maximizes profits of sellers.
d. minimizes the level of welfare payments to those who no longer live below the poverty
line
To determine the correct answer, let's break down each option and discuss how welfare economics affects the equilibrium price of a product.
a. maximizes total revenue for firms and maximizes the quantity supplied of the product.
In welfare economics, the focus is not solely on maximizing the total revenue for firms or maximizing the quantity supplied of the product. While these factors are important for businesses, welfare economics takes into account both the welfare of buyers and sellers, not just the producers.
b. maximizes the combined welfare of buyers and sellers.
This is the most accurate statement. Welfare economics aims to maximize the overall welfare or well-being of both buyers and sellers in a market. It considers the consumer surplus, which represents the difference between the price consumers are willing to pay and the actual market price, and the producer surplus, which represents the difference between the market price and the cost of production for sellers. The equilibrium price represents a point where the combined welfare of buyers and sellers is maximized.
c. minimizes costs and maximizes profits of sellers.
While minimizing costs and maximizing profits for sellers are important considerations for businesses, welfare economics takes a broader view that also considers the welfare of buyers. Therefore, this option does not fully capture the concept of welfare economics.
d. minimizes the level of welfare payments to those who no longer live below the poverty line.
Welfare economics is not primarily concerned with minimizing welfare payments to individuals. While it aims to maximize overall welfare, it does not specifically focus on minimizing welfare payments to a particular group of individuals.
In conclusion, the correct answer is b. Welfare economics considers the overall welfare of buyers and sellers, and the equilibrium price is considered to be the best price as it maximizes the combined welfare of both parties involved in the market.