"A competitive market achieves economic efficiency by maximizing the sum of consumer surplus and producer surplus." This statement
A)is true only if there are positive externalities in production in the market.
B)is true only if there are no negative externalities in the market.
C)is true only if there are no positive or negative externalities in the market.
D)is true in theory, but economic efficiency cannot be achieved in a real market.

Question

Quizplus · Accepted Answer

The statement is true only if there are no positive or negative externalities in the market. In a competitive market, the price is determined where the quantity demanded equals the quantity supplied, maximizing both consumer and producer surplus. However, if there are externalities present, such as pollution or public goods, the market will not achieve economic efficiency on its own as the price will not account for these external costs or benefits.

"A Competitive Market Achieves Economic Efficiency by Maximizing the Sum