When a competitive equilibrium is achieved in a market,
A)all individuals are better off than they would be if a price ceiling or price floor was imposed by government.
B)the total net benefit to society is maximized.
C)the total benefits to consumers are equal to the total benefits to producers.
D)economic surplus equals the deadweight loss.

Question

Quizplus · Accepted Answer

In a competitive equilibrium, the market clears, which means that the price and quantity exchanged are such that the total net benefit to society is maximized. This occurs when the price equals the marginal cost of production, and all potential buyers and sellers can participate in the market. While it is not necessarily true that all individuals are better off than they would be under government intervention, and consumer and producer benefits may not be equal, the maximization of total net benefit is the key characteristic of a competitive equilibrium. Deadweight loss may still exist in a competitive equilibrium if there are externalities or market power.

When a Competitive Equilibrium Is Achieved in a Market