When a competitive market is in equilibrium, which of the following is true?

• A. Quantity supplied equals quantity demanded.
• B. There is a persistent shortage in the market.
• C. Firms can increase profits by raising prices.
• D. The price is above the equilibrium price.

Answer: (A)

Verified step by step guidance

1. Understand the concept of market equilibrium: In a competitive market, equilibrium occurs where the quantity of a good that consumers want to buy equals the quantity that producers want to sell.
2. Recall the equilibrium condition: At equilibrium, the market price adjusts so that quantity demanded (Q_d) equals quantity supplied (Q_s). This can be expressed as \(Q_d = Q_s\).
3. Analyze the implications of equilibrium: Since quantity demanded equals quantity supplied, there is no shortage or surplus in the market at this price.
4. Consider what happens if the price is above or below equilibrium: If the price is above equilibrium, quantity supplied exceeds quantity demanded, causing a surplus; if below, quantity demanded exceeds quantity supplied, causing a shortage.
5. Recognize that firms cannot increase profits by raising prices above equilibrium in a competitive market because consumers will buy less, and other firms will not follow the price increase.