When the price of a good is below its equilibrium level under perfect competition,
A)consumers would benefit from an expansion of output.
B)some consumers are earning larger consumer's surpluses than they would in equilibrium.
C)the market is not operating at maximum efficiency.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

When the price of a good is below its equilibrium level under perfect competition, all of the above statements are correct. Consumers benefit from an expansion of output because they can purchase more of the good or service at a lower price. Some consumers are earning larger consumer's surpluses than they would in equilibrium because they are able to purchase the good or service at a lower price than they otherwise would. The market is not operating at maximum efficiency because resources are not being allocated efficiently, resulting in a shortage of the good or service.

When the Price of a Good Is Below Its Equilibrium