In a competitive market, if output is too high, what does this indicate about efficiency?

When output in a competitive market is too high, it is indicative of inefficiency in the allocation of resources. In a perfectly efficient market, resources are allocated in such a way that the quantity of goods produced matches the quantity demanded by consumers at a price that reflects the true cost of production.

If output exceeds the equilibrium level—where supply equals demand—this suggests that too many resources are being devoted to production. This overproduction can lead to wasted resources, as goods may not find willing buyers at the prevailing prices, thereby creating excess supply. The existence of surplus goods implies that the market is not functioning optimally, as some resources could be used more effectively elsewhere, leading to a misallocation.

In essence, for a market to function efficiently, it must operate at a level of output where the interests of both consumers and producers are balanced, reflecting the principle of marginal cost equaling marginal benefit. When output is too high, not only are resources potentially wasted, but the overall welfare of society may not be maximized, illustrating an inefficient allocation of resources.