Which of the following is true of a competitive market equilibrium?
A) It minimizes social surplus.
B) All the gains from trade are not realized.
C) It is Pareto efficient.
D) All firms earn positive economic profits.

Question

Quizplus · Accepted Answer

A competitive market equilibrium maximizes total social surplus and is Pareto efficient, meaning that there is no way to make any individual better off without making someone else worse off. Economic profits may be positive or negative for firms in a competitive market equilibrium, depending on the specific market conditions and costs associated with production, but not all firms necessarily earn positive economic profits. A market equilibrium also ensures that all gains from trade are realized since prices and quantities are set such that demand equals supply.

Which of the Following Is True of a Competitive Market