Equilibrium in a competitive market maximizes total surplus.

Question

Quizplus · Accepted Answer

In a competitive market, equilibrium occurs where the market demand and market supply curves intersect. At this point, the quantity supplied matches the quantity demanded, and the market price is established. This results in a maximization of total surplus, which is the sum of consumer surplus and producer surplus. Consumer surplus is the difference between the maximum price a consumer is willing to pay and the actual price they pay, while producer surplus is the difference between the minimum price a producer is willing to accept and the actual price they receive. At the equilibrium price, both consumers and producers are able to maximize their individual surpluses, resulting in a maximum total surplus for the market.

Equilibrium in a Competitive Market Maximizes Total Surplus