The diagram below shows demand and supply curves for some perfectly competitive market.
FIGURE 16- 2
-Refer to Figure 16- 2.Suppose that the marginal benefit curve (MB)includes all social benefits and that there are no externalities in production.In this case,for allocative efficiency.

Question

The diagram below shows demand and supply curves for some perfectly competitive market.
  FIGURE 16- 2
-Refer to Figure 16- 2.Suppose that the marginal benefit curve (MB)includes all social benefits and that there are no externalities in production.In this case,for allocative efficiency.

Quizplus · Accepted Answer

Allocative efficiency occurs at the point where marginal benefit equals marginal cost, or where the demand curve intersects with the supply curve. In this case, the marginal benefit curve includes all social benefits and is equivalent to the demand curve. At point P1 and Q1, the quantity demanded is equal to the quantity supplied, and the price reflects the social marginal benefit and the marginal cost of production. Therefore, P1 and Q1 are appropriate for allocative efficiency.

The Diagram Below Shows Demand and Supply Curves for Some