Competitive equilibrium is an important topic in the field of economics, but it is highly complex at the same time. If you are thinking that you will get the exact answers in your textbooks or on internet on this topic, then you are surely mistaken, because the teachers are not going to give direct questions just like that. They will definitely wish that you do a little brainstorming before answering the questions.
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Competitive equilibrium and how it ensures proper resource allocation
Competitive equilibrium is an economic scenario in which neither the sellers nor the buyers can improvise the bargaining condition given the existing conditions of supply, wage rates, and prices. At the equilibrium level of price, the demand is going to be equal to the supply.
If there will be any price and quantity combination apart from the equilibrium level of price and quantity, then it will diminish the overall level of efficiency, and it is also symbolic of the fact that resources are not properly allocated in an economy. It is only through the equilibrium position that it can be ensured that the resources are utilized to their optimum level, and the forces of demand and supply are counter balanced.
At the level of competitive equilibrium, the exact value that is related to a particular good is equal to the value of those resources which were given up for its production. You can also say that here marginal benefit will be equal to marginal cost. Thus, it is a proof that competitive equilibrium always ensures proper resource allocation.
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