For markets operating at quantities lower than the equilibrium quantity produced in an equivalent perfectly competitive market:
A) the outcome is efficient.
B) total surplus is increased.
C) consumer surplus is always increased.
D) total surplus for society is reduced.

Question

Quizplus · Accepted Answer

When the market is operating at quantities lower than the equilibrium quantity, it means that the demand for the product is higher than the supply. As a result, the price of the product will be higher than the equilibrium price. However, at this higher price, some potential consumers who would have been willing and able to purchase the product at the equilibrium price will be deterred from buying it. Hence, the market outcome is not efficient, and the total surplus for society is reduced. Therefore, option D is the correct answer.

For Markets Operating at Quantities Lower Than the Equilibrium Quantity