The efficiency condition requires that:
A) prices do not send signals to market participants.
B) prices confront consumers with the marginal costs and marginal benefits of their actions.
C) prices confront producers with profits from their actions.
D) prices maintain a shortage in all markets.

Question

Quizplus · Accepted Answer

The efficiency condition states that prices should confront consumers with the marginal costs and benefits of their actions. This means that consumers are able to make informed decisions based on the true cost and benefit of their actions, leading to efficient resource allocation. Choice A is incorrect because prices are meant to send signals to market participants. Choice C is partially correct, as prices do confront producers with profits, but this alone is not sufficient for efficiency. Choice D is incorrect, as maintaining a shortage in all markets would lead to inefficiency.

The Efficiency Condition Requires That