When a perfectly competitive, well-functioning market is not in equilibrium:
A) total surplus is not maximized.
B) any additional changes to make someone better off will make someone else worse off.
C) the market is efficient.
D) All of these are correct.

Question

Quizplus · Accepted Answer

When a perfectly competitive, well-functioning market is not in equilibrium, total surplus is not maximized. This is because in any market not in equilibrium, there exists a mismatch between the quantity supplied and the quantity demanded, leading to either a shortage or a surplus. In the case of a shortage, buyers are willing to pay more than the equilibrium price, while in the case of a surplus, sellers are willing to accept a lower price than the equilibrium price. This leads to a deadweight loss, as buyers and sellers are unable to trade at the mutually beneficial equilibrium price. Therefore, total surplus is not maximized in a market not in equilibrium.

When a Perfectly Competitive, Well-Functioning Market Is Not in Equilibrium