Equilibrium in a competitive market maximises total surplus.

Question

Quizplus · Accepted Answer

In a competitive market, equilibrium is reached when the supply and demand curves intersect, and the quantity traded at that price maximises the total surplus. This is because at equilibrium, the price reflects the marginal cost of production and the marginal benefit to consumers, leading to efficient allocation of resources and higher overall welfare. Therefore, a competitive market equilibrium is the socially optimal outcome that maximises total surplus.

Equilibrium in a Competitive Market Maximises Total Surplus