ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Total welfare is maximized when a market produces at its equilibrium price and quantity. This level of output is considered allocatively efficient because no other price and quantity combination can achieve a greater level of total surplus.

Detailed explanation-2: -Therefore, total surplus is maximized when the price equals the market equilibrium price. In competitive markets, only the most efficient producers will be able to produce a product for less than the market price. Hence, only those sellers will produce a product.

Detailed explanation-3: -See how Total Surplus = Consumer Surplus + Producer Surplus is maximized at the intersection of the Supply and Demand Curves. Maximizing Total Surplus leads to “efficient markets".

Detailed explanation-4: -An allocation of resources that maximises total surplus is said to be efficient. If an allocation is not efficient, then some of the potential gains from trade among buyers and sellers are not being realised.