What two conditions must hold for a competitive market to produce eﬃcient outcomes?
A) Demand curves must reﬂect all costs of production, and supply curves must reﬂect consumers' full willingness to pay.
B) Supply curves must reﬂect all costs of production, and demand curves must reﬂect consumers' full willingness to pay.
C) Firms must minimize production costs, and consumers must minimize total expenditures.
D) Firms must maximize proﬁts, and consumers must all pay prices equal to their maximum willingness to pay.

Question

Quizplus · Accepted Answer

For a competitive market to produce efficient outcomes, supply curves must reflect all costs of production, and demand curves must reflect consumers' full willingness to pay. This ensures that the market is allocating resources efficiently and that the marginal cost of production is equal to the marginal benefit to consumers. When both supply and demand curves are accurate, prices will reflect both the cost of production and consumers' demand, leading to an efficient market outcome.

What Two Conditions Must Hold for a Competitive Market to Produce