When a perfectly competitive, well-functioning market is not in equilibrium:
A) total surplus is not maximized.
B) the market is not efficient.
C) exchanges exist that make some better off without making someone else worse off.
D) All of these are correct.

Question

Quizplus · Accepted Answer

When a perfectly competitive, well-functioning market is not in equilibrium, all of the options are correct. Total surplus is not maximized because some participants are willing to pay more than what they must pay, while others are willing to accept less than what they could receive. The market is not efficient because some transactions that could occur do not, while other transactions occur that may not be socially desirable. Exchanges exist that will make some better off without making someone else worse off because some participants are willing to pay more for a product or service than what they must pay, and others are willing to provide a good or service for a lower price than what they could receive.

When a Perfectly Competitive, Well-Functioning Market Is Not in Equilibrium