Which of the following is true? When there are no externalities, public goods, common resources, taxes or subsidies, then
I. allocative efficiency occurs when marginal benefit exceeds marginal cost by as much as possible.
Ii. a competitive equilibrium resource allocation is efficient.
Iii. fair rules require income transfers from the rich to the poor.

Question

Quizplus · Accepted Answer

In the absence of externalities and other market distortions, a competitive equilibrium leads to an efficient allocation of resources, where marginal benefit equals marginal cost. This is allocative efficiency, making statement ii true. Statement i is incorrect because allocative efficiency occurs when marginal benefit equals marginal cost, not when marginal benefit exceeds it. Statement iii is unrelated to efficiency and pertains to equity, not efficiency.

Which of the Following Is True? When There Are No