Economics Welfare Economics Questions
The conditions for market equilibrium are:
1. Supply and demand: The quantity of goods or services supplied by producers must be equal to the quantity demanded by consumers.
2. Price: The price at which the quantity supplied equals the quantity demanded is known as the equilibrium price. It is the price at which there is no excess supply or excess demand in the market.
3. No market power: In a perfectly competitive market, no individual buyer or seller has the ability to influence the market price. This ensures that the market operates efficiently and allocates resources optimally.
4. Rational behavior: Buyers and sellers act rationally by maximizing their own utility or profit. They make decisions based on their preferences and available information.
5. Perfect information: All market participants have access to complete and accurate information about prices, quantities, and product characteristics. This allows them to make informed decisions and ensures efficient resource allocation.
6. Absence of externalities: External costs or benefits that are not reflected in the market price can disrupt market equilibrium. In an ideal market, there are no externalities, and all costs and benefits are internalized by buyers and sellers.
These conditions collectively determine the market equilibrium, where the quantity supplied equals the quantity demanded, and there is no tendency for prices or quantities to change.