In general, if a benevolent social planner wanted to maximize the total benefits received by buyers and sellers in a market, the planner should?
Correct answer: B. allow the market to seek equilibrium on its own.
- A. choose a price below the market equilibrium price
- B. allow the market to seek equilibrium on its own.
- C. Choose any price the planner wants because the losses to the sellers (buyers) from any change in price are exactly offset by the gains to the buyers (sellers).
- D. choose a price above the market equilibrium price
Explanation
In a competitive market, equilibrium quantity maximizes the combined benefits of buyers and sellers because marginal benefit equals marginal cost. A benevolent planner therefore allows the market to reach equilibrium on its own.
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