2.(1pt) Consumer surplus (CS) and Producer surplus (PS) explain why economists say competitive markets are efficient. Answer the following questions by circling correct answers considering why below- or above-equilibrium levels of output is inefficient. When the consumers' utility is (greater, less) than the price paid, consumer surplus is generated. Thus, CS is (directly, inversely) related to price. Likewise, when producers receive a price ( greater, less) than marginal cost, producer surplus is created. Thus, PS is ( directly, inversely) related to price. By producing up to the point where MB = MC, the maximum, minimum) potential CS and PS are generated. Producing less than the equilibrium level means that potential surplus is left unrealized. ( Underproduction, Overproduction ) subtracts from the surplus because society values the use of the additional resources in other pursuits more than it values them in the consumption of that good. 3. (1 pt) Use the graph below to identify the efficiency loss when there is underproduction (Q1) and the efficiency loss when there is overproduction (Q3) in a market. P C X a Q1 Q Q S D The efficiency loss from underproduction occurs at (Q1, Q2, Q3 ) would be the triangular area (abc, abe, cde). The efficiency loss from overproduction at (Q1, Q2, Q3) would be the triangular area (abc, abe, cde). For output levels above the equilibrium output, the maximum willingness to pay by consumers is (greater, less) than the producer's minimum acceptable price, so there is a loss to society.