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
PEfor(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 PL but the buyer derive a benefit of PH. So this misallocate the resources.
2) Surplus Marginal Cost Exceeds Marginal Benefit. In the case price is set at PH and only a quantity QL less that the supplied quantity QH is cleared. Production is at MC=PH but MB=PL. So there is profit loss...

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