When a competitive market achieves allocative efficiency, it implies that: a. The marginal benefit of having the product is greater than the marginal cost b. The buyers are getting the maximum consumer surplus from the product c. The combined consumer and producer surplus is maximized d. The quantity demanded is lower than the quantity supplied Please give me more details about the correct answer.

When a competitive market achieves allocative efficiency, it implies that: a. The marginal benefit of having the product is greater than the marginal cost b. The buyers are getting the maximum consumer surplus from the product c. The combined consumer and producer surplus is maximized d. The quantity demanded is lower than the quantity supplied Please give me more details about the correct answer.

 

 

Answer:

Solution: c. The combined consumer and producer surplus is maximized

Explanation: Allocative efficiency implies maximum consumer and producer surplus; and at long-run competitive equilibrium the price equals marginal cost that equals minimum average total cost. These equalities ensure combined consumer and producer surplus i.e. maximum total surplus. If there is any quantity less than equilibrium would reduce both consumer and producer surplus; and a quantity greater than equilibrium would result with an efficiency loss that would be subtract from combined consumer and producer surplus

Asked on February 15, 2018 in economics.
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