At equilibrium in a competitive market, S = D (i.e., supply is equal to demand). Is...

At equilibrium in a competitive market, S = D (i.e., supply is equal to demand). Is this good? Is this bad? What exactly does it mean?

Expert Solution

In a competitive market, equilibrium is achieved when market demand for a good is equal to the supply of the good. At equilibrium, total surplus to both the producers and buyers is highest.

What it means is that the total quantity of goods produced in the market is equal to the total demand for the good, thereby ensuring highest efficiency of production and consumption in the market.

The resources of a society are efficiently used if they are so used and allocated that the consumers get the maximum possible satisfaction. When such an efficiency has been achieved, it is then not possible through any reorganization of resources and production of goods and services to make anyone better off without making someone worse off.

Therefore, we can say that this is good for both the producers as they are able to sell all the goods that they have produced at a certain price. Whereas the buyers are also able to buy total demanded quantity by them at the same price.

Rahul Sunny answered 2 years ago

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