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 when the marginal benefit (MB) of consumption equals the marginal cost (MC) of production. In a perfectly competitive market, the market equilibrium point where the demand curve intersects with the supply curve represents the point of economic efficiency. In this case, the equilibrium point is at P1 and Q1, which means that the quantity demanded (Q1) equals the quantity supplied (Q1) and the market is efficient. Additionally, since the marginal benefit curve includes all social benefits and there are no externalities, the market is considered to be efficient at this point. Therefore, the price (P1) and quantity (Q1) are appropriate for allocative efficiency.

The Diagram Below Shows Demand and Supply Curves for Some