The market equilibrium in a many-person setting is an:
A)efficient allocation even though the terms of exchange are indeterminate.
B)efficient allocation because all traders face the same prices.
C)inefficient allocation.Although each pair of traders may arrive at the contract curve,the marginal rates of substitution for different trading pairs may not be equal.
D)inefficient allocation because not everyone likes the prices the market sets.

Question

Quizplus · Accepted Answer

In a many-person setting, the market equilibrium is an efficient allocation because all traders face the same prices. This means that the market is clearing, and there is no excess demand or supply. All the trades that occur at this price are mutually beneficial, and the allocation is Pareto optimal, meaning there is no way to make one person better off without making someone else worse off. Therefore, choice B is the correct answer. Choices A, C, and D are incorrect.

The Market Equilibrium in a Many-Person Setting Is An