Question

In the absence of market failures, a perfectly competitive market equilibrium is efficient for which of the following reasons?


Consumer surplus is maximized and consumers are better off relative to producers.


a

Producer surplus is maximized and producers are better off relative to consumers.


b

Total economic surplus is maximized and all mutually beneficial transactions are exhausted.


c

Total economic surplus is distributed equally between producers and consumers.


d

The quantity of output is produced at a constant cost so that every consumer pays the same price.

Answer 1

c

In a perfectly competitive market without market failures, output is allocated where marginal benefit equals marginal cost, maximizing total economic surplus (consumer + producer surplus) and exhausting all mutually beneficial trades. The other choices are incorrect because competitive equilibrium does not necessarily maximize consumer or producer surplus individually, does not guarantee equal distribution, and does not require constant costs or identical prices across consumers.