Question

With the aid of graph(s), explain why a benevolent social planner will choose to equate quantity demanded to quantity supplied.

Answer 1

A social planner would want both consumers and producers to profit. If that is the case , he would want an equilibrium point where there is no excess supply or excess demand. In cases of excess demand , price levels would rise up affecting consumer spending while in cases of excess supply, price levels would decrease affecting producers profitability. Hence , the social planner wants an equilibrium where Quantity Demanded equals Quantity Supplied. [P_E represents Price at equilibrium while Q_E represents quantity supplied at equilibrium, SS being the supply curve and DD being demand, E denotes the equilbrium point, where SS and DD intersect]
[See graph]