In a well-functioning competitive market, total surplus:
A) can never be zero.
B) can never fall below zero.
C) is always zero.
D) is always below zero.

Question

Quizplus · Accepted Answer

In a well-functioning competitive market, total surplus is the sum of consumer surplus and producer surplus. Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good and the actual price paid, while producer surplus is the difference between the minimum price a producer is willing to accept for a good and the actual price received. Total surplus can fall below zero in situations of market failures such as monopolies or externalities, but in a well-functioning competitive market, it should always be positive. Therefore, choice (B) is the correct answer.

In a Well-Functioning Competitive Market, Total Surplus