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) where the areas 1, 2, 3, and 4 are maximized.
B) at the higher output Q3.
C) at price P1 and output Q3.
D) at price P2 and output Q2.
E) at the lower output Q1.

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) where the areas 1, 2, 3, and 4 are maximized. 
B) at the higher output Q3. 
C) at price P1 and output Q3. 
D) at price P2 and output Q2. 
E) at the lower output Q1.

Quizplus · Accepted Answer

Allocative efficiency occurs where the price equals the marginal cost of production, which is typically at price P2 and output Q2 in a standard supply and demand diagram.

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