FIGURE 16-1
-Refer to Figure 16-1. Suppose that the perfectly competitive market with no government intervention achieves equilibrium at point A. If the social marginal costs and social marginal benefits are represented by MC0 and MB0, respectively, then
A) the competitive price is too high.
B) the competitive price is too low.
C) the competitive quantity is too high.
D) the competitive quantity is too low.
E) the competitive price and quantity are consistent with allocative efficiency.

Question

FIGURE 16-1
-Refer to Figure 16-1. Suppose that the perfectly competitive market with no government intervention achieves equilibrium at point A. If the social marginal costs and social marginal benefits are represented by MC0 and MB0, respectively, then
A) the competitive price is too high. 
B) the competitive price is too low. 
C) the competitive quantity is too high. 
D) the competitive quantity is too low. 
E) the competitive price and quantity are consistent with allocative efficiency.

Quizplus · Accepted Answer

In a perfectly competitive market with no externalities, the equilibrium at point A where MC0 equals MB0 represents allocative efficiency, meaning the competitive price and quantity are optimal.

FIGURE 16-1 -Refer to Figure 16-1. Suppose That the Perfectly Competitive Market