Why does perfect competition guarantee a Pareto optimal distribution of goods between two people? Under perfect competition,
A) everyone has the same preferences.
B) everyone faces the same prices.
C) everyone consumes the same quantity of both goods.
D) goods are homogeneous.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, all participants are price takers, meaning they face the same prices for goods and services. This ensures that resources are allocated in the most efficient manner possible, leading to a Pareto optimal distribution where no individual's situation can be improved without worsening another's.

Why Does Perfect Competition Guarantee a Pareto Optimal Distribution of Goods