Gains from trade are maximized in a competitive market when:
A) quantity supplied equals quantity demanded.
B) quantity supplied exceeds quantity demanded.
C) quantity demanded exceeds quantity supplied.
D) quantity supplied equals zero.

Question

Quizplus · Accepted Answer

In a competitive market, gains from trade are maximized when quantity supplied equals quantity demanded. This is because at this equilibrium point, the market is efficiently allocating resources and buyers and sellers are able to trade at a price that benefits both parties. If quantity supplied exceeds quantity demanded, there will be a surplus of goods and prices will be pushed down, leading to less gains from trade. On the other hand, if quantity demanded exceeds quantity supplied, there will be a shortage of goods and prices will be pushed up, leading to less gains from trade.

Gains from Trade Are Maximized in a Competitive Market When