The diagram below shows the demand and supply curves in a perfectly competitive market.
FIGURE 12-5
-Refer to Figure 12-5. Allocative efficiency occurs
A) at output level Q3.
B) at output level Q1.
C) at price P1 and output Q3.
D) at price P2 and output Q2.
E) where the areas 1, 2, 3, and 4 are maximized.

Question

The diagram below shows the demand and supply curves in a perfectly competitive market.
  FIGURE 12-5
-Refer to Figure 12-5. Allocative efficiency occurs
A) at output level Q3. 
B) at output level Q1. 
C) at price P1 and output Q3. 
D) at price P2 and output Q2. 
E) where the areas 1, 2, 3, and 4 are maximized.

Quizplus · Accepted Answer

Allocative efficiency occurs where marginal cost (MC) equals price (P). This occurs at output level Q2 and price P2 in the diagram, as this is where the supply and demand curves intersect. Therefore, the best choice is D, at price P2 and output Q2.

The Diagram Below Shows the Demand and Supply Curves in a Perfectly