Consider a perfectly competitive market at equilibrium. The equilibrium price defines

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The question asks about what the equilibrium price in a perfectly competitive market defines.
Option 1: 'how value created is divided between consumers and firms.' This wording is close but uses 'value created' rather than the standard economic term 'economic value.' It suggests a focus on created value without explicitly tying it to the allocation between consumers and producers, which can be confusing and is not the textbook phrasing.
Option 2: 'how economic value is divided between consumers and firms.' This aligns with the core insight of equilibrium in perfect competition: the price reflects the marginal benefit to consumers and the marginal cost to firms, determining how the total economic value generated in the market is allocated between buyers (consumers) and sellers (firms).
Option 3: 'how economic value is divided between firms and their suppliers.' While suppliers are part of the production process, the equilibrium price in perfect competition pertains to the allocation between consumers and firms, not between firms and suppliers. This option misidentifies the primary parties involved in the distribution of value at equilibrium.
Option 4: 'how value created is divided between firms and their suppliers.' This option again shifts the focus to inter-firm supplier relationships rather than the consumer–firm distribution of economic value at the market level. It overlooks the consumer side of the allocation and uses imprecise terminology about 'value created.'

Consider a perfectly competitive market at equilibrium. The equilibrium price defines

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Consider a perfectly competitive market at equilibrium. The equilibrium price defines

View Explanation

Log in for full answers

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The sum of consumer surplus and producer surplus is equal to

According to the lecture, economic welfare or value created represents:

Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Tony experiences a

Consumer surplus is a gain from exchange, but producer surplus is a loss from exchange.

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Figure 9-2Refer to Figure 9-2. The increase in total surplus resulting from trade is