1)Is equilibrium always at an optimal level of output?

2)Refer to the diagram above. When the market price is $21.50, we expect that the market price tends to go _____ and the market quantity tends to go _____, eventually.

A. down; down

B. down; up

C. up; up

D. up; down

1)No, the equilibrium not always becomes an optimal level of output. For instance, in the case of market failure, when there is a negative externality then the equilibrium level is greater than the socially optimal level of output whereas when there a positive externality then the equilibrium level is less than the socially optimal level of output.

2)

• The correct option is (D). Up; down.

In the given figure, the equilibrium market price and quantity are $20 and 30 units respectively. And, when the market price becomes $21.50 then we expect the market price to rise/up and the market quantity to decline/down eventually.