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 marginal cost (P=MC), which is typically at price P2 and output Q₂, ensuring resources are allocated in a way that maximizes total surplus.

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