When buyers and sellers optimize in a perfectly competitive market,________.
A) social surplus is maximized
B) social surplus is minimized
C) only consumer surplus is maximized
D) only consumer surplus is minimized

Question

Quizplus · Accepted Answer

In a perfectly competitive market, both buyers and sellers are price takers who have no control over the market price. As a result, they optimize their actions based on this given price. When they make decisions based on this price, they try to maximize their own surplus (either producer or consumer). As a result, the market reaches a point where no buyer or seller can be made better off by trading more or less at the existing market price. This condition is known as Pareto efficiency. At this point, social surplus is maximized, so the correct answer is A.

When Buyers and Sellers Optimize in a Perfectly Competitive Market,________