When the price of a good is below its equilibrium level under perfect competition,
A)consumers would benefit from an expansion of output.
B)some consumers are earning larger consumer's surpluses than they would in equilibrium.
C)the market is not operating at maximum efficiency.
D)All of the responses are correct.

Question

Quizplus · Accepted Answer

When the price of a good is below its equilibrium level, it indicates that the quantity demanded exceeds the quantity supplied, leading to a shortage. This situation benefits consumers who are able to purchase the good at a lower price, thus increasing their consumer surplus. However, the market is not at maximum efficiency because not all demand is being met, and there is an opportunity to increase total surplus (the sum of consumer and producer surplus) by expanding output to reach the equilibrium level.

When the Price of a Good Is Below Its Equilibrium