What must happen to both consumer and producer surplus for economic welfare to be maximized?

For economic welfare to be maximized, both consumer surplus and producer surplus must be maximized. Consumer surplus is the difference between what consumers are willing to pay for a good or service and what they actually pay, representing the benefit consumers receive. Producer surplus is the difference between what producers are willing to accept for a good or service and the actual price they receive, reflecting the benefit to producers.

When both surpluses are maximized, it indicates that resources are being allocated efficiently within the economy. This optimal allocation means that the market is producing goods and services at a level where the demand (reflected in consumer surplus) aligns perfectly with the supply (reflecting producer surplus). Consequently, maximizing both consumer and producer surplus contributes to overall economic well-being, as it reflects a situation where both parties gain from the economic transactions; hence, economic welfare reaches its peak.

In summary, maximizing both consumer and producer surplus signifies an economy operating at peak efficiency, leading to enhanced economic welfare.