Question

For a given quantity of output in a competitive market, where is the marginal buyer's reservation price represented on the market supply and demand graph?

A. Equilibrium point
B. Above the demand curve
C. Below the demand curve
D. On the supply curve

Answer 1

The marginal buyer's reservation price in a competitive market is represented at the equilibrium point, where the demand and supply curves intersect.

Step-by-step explanation:

When examining a competitive market supply and demand graph, the marginal buyer's reservation price is represented at the equilibrium point, specifically where the demand curve intersects with the supply curve. The equilibrium point is the only price where quantity demanded equals quantity supplied, reflecting the point of agreement between consumers and producers. For example, if the equilibrium price is $1.40 for 600 units, this price reflects the marginal buyer's reservation price as well as the marginal seller's cost, indicating the market is in balance with neither excess supply nor demand.