An economy in which there are no market failures and all industries are in a competitive long- run equilibrium is one where 1.allocative efficiency is achieved;
2.the economy is on the production possibilities boundary;
3.there is no incentive for firms to enter or leave industries.

Question

Quizplus · Accepted Answer

Choice 1: Allocative efficiency is achieved because the market is in long-run equilibrium, meaning that firms are producing at the lowest possible cost and consumers are willing to pay the highest possible price, resulting in the efficient allocation of resources.
Choice 2: The economy is on the production possibilities boundary (PPB) because all resources are being fully utilized to their best potential, which is a characteristic of a perfectly competitive market in long-run equilibrium.
Choice 3: There is no incentive for firms to enter or leave industries because all firms are earning zero economic profit (only normal profit), indicating that they are producing at the lowest possible cost and are in long-run equilibrium. This means that there is no room for new firms to enter the market and existing firms have no incentive to leave the industry.

An Economy in Which There Are No Market Failures and All