In a market, distortions do not exist if:

Question

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In a perfectly competitive market, the equilibrium is reached at the point where the social marginal benefit (SMB) equals the social marginal cost (SMC). This means that resources are allocated efficiently and there are no distortions in the market. If SMB is less than SMC, there is underproduction of the good or service, while if SMB is greater than SMC, there is overproduction. If the private marginal benefit (PMB) is greater than SMB, there is a positive externality and the market is not taking into account the full societal value of the good or service.

In a Market, Distortions Do Not Exist If