Answer:
C. combined consumer and producer surplus is maximized.
Explanation:
A competitive market can be defined as a type of market that comprises of numerous producers who compete with each other so as to satisfy or meet the material needs and wants of consumers at a specific period of time.
This simply means that, in a competitive market, there are many buyers and sellers (price takers) of homogeneous products (standardized products with substitute) and the market is free (practically open) to all individuals or business entities that are willing to trade all their goods and services.
Hence, a competitive market is characterized by the following features;
1. Perfect information.
2. No barriers, it is typically free.
3. Equilibrium price and quantity.
4. Many buyers and sellers.
5. Homogeneous products.
Examples of a competitive market are the Agricultural sector, e-commerce and the foreign exchange market.
Hence, when a competitive market maximizes economic surplus, it implies that the combined consumer and producer surplus is maximized and this ultimately result in an allocative efficiency of resources. A consumer surplus refers to the situation where the market price is below what consumers are willing to pay for a particular product at a specific period of time.
On the other hand, a producer surplus refers to the total or overall amount of money that a producer of a product benefit or realize from the production and sales of a quantity of the product at a given market price.
For instance, assuming the market price of a basket of tomatoes is $20 and a buyer is willing to pay $40; the consumer surplus is $20. However, if the producer is able to sell it at $35, the producer surplus is $15. Therefore, the economic surplus in this competitive market is $35.
