'A competitive market achieves economic efficiency by maximising 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

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good and the actual price they pay. Producer surplus is the difference between the minimum price a producer is willing to sell a good for and the actual price they receive. In a competitive market, the market price will be determined by the intersection of the supply and demand curves, which will result in allocative efficiency. Allocative efficiency means that resources are allocated to their most valued use, and it occurs where the marginal benefit of consumption is equal to the marginal cost of production. If there are no externalities in the market, the market achieves economic efficiency, and the sum of consumer surplus and producer surplus is maximized. Therefore, option C is correct.

'A Competitive Market Achieves Economic Efficiency by Maximising the Sum