Question

When property rights are well defined and markets are competitive:

A.)the total gains from trade (the combined area of producer and consumer surplus) are maximized at the market equilibrium.

B.)the market equilibrium is consistent with economic efficiency in that all units creating more benefit than cost have been produced.

C.)the market will automatically move toward the price and quantity where the quantity supplied and the quantity demanded are in balance.

D.)all of the above are true.

Answer 1

The answer is option b- the market equilibrium is consistent with economic efficiency in that all units creating more benefit than cost have been produced.

An action is only efficient if it yields more gain than cost. Market equilibrium is effective, with well-defined property rights and competition. When a market reaches equilibrium, all trade benefits have been fully realized, and the price of supply (the cost), output and sale of the unit is consistent with economic performance.