Question

In a market economy, will units of a good be produced and purchased if consumers value them more than their cost of production? Explain why or why not. If the production cost per unit of a good exceeds the value derived by consumers, will the good continue to be produced and consumed? Why or why not?

Answer 1

In a market economy, the goods and services will even be produced and purchased even if the consumers value them more than their cost of production . This is because due to the higher willingness to pay by the consumers and their desire to buy the commodities, producers will produce more in order to earn more and thus to make use the situation in a fruitful manner.

But when the production cost per unit of a good produced increases or exceeds the value derived by the consumers, He will no longer wish to consume that good because when the cost price of a good increase it tends to a fall in the marginal utility of the goods. So inorder to maximise the utility the consumer tend to buy less number of units. Consumer- orientation is the focal point of this age of marketing. Consumers think about the products they are purchasing, its attributes, prices, utilities according to their own way.