In a competitive market with no externalities,
A) the consumer surplus is equal to zero because of competition.
B) buyers cannot control the price, so the consumer surplus is zero.
C) at the equilibrium price, marginal benefit exceeds marginal cost.
D) at the equilibrium price, marginal benefit equals marginal cost.
E) at the equilibrium price, the total amount of consumer surplus equals the total amount of producer surplus.

Question

Quizplus · Accepted Answer

In a competitive market with no externalities, the market equilibrium occurs where the marginal benefit (MB) equals the marginal cost (MC) for each unit bought or sold. At this equilibrium, the consumer surplus is maximized and is equal to the difference between the highest price each consumer is willing to pay (MB) and the market price. Therefore, at the equilibrium price in the competitive market with no externalities, marginal benefit equals marginal cost, and there is a positive consumer surplus.

In a Competitive Market with No Externalities