Why is any price above or below the clearing price inefficient?

1 Answer
Mar 22, 2016

Note from the Supply/Demand curve at Price points other that
P_E => "for AA (P,Q): D(P,Q) = S(P,Q) the market does not clear.
That is there will be either a surplus or shortage. This two cases result in either:
1) Shortage =>an inefficient allocation of resources. The price set at P_L but the buyer derive a benefit of P_H. So this misallocate the resources.
2) Surplus=> Marginal Cost Exceeds Marginal Benefit. In the case price is set at P_H and only a quantity Q_L less that the supplied quantity Q_H is cleared. Production is at MC=P_H but MB=P_L. So there is profit loss...

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