A competitive market with no externalities is efficient when it is in equilibrium because
A) total benefit equals total cost.
B) marginal benefit equals marginal cost.
C) consumer surplus equals producer surplus.
D) the sum of consumer surplus plus producer surplus is minimized.
E) the deadweight gain equals its maximum.

Question

Quizplus · Accepted Answer

In a competitive market with no externalities, the market is efficient when it is in equilibrium because at this point, marginal benefit equals marginal cost. This means that resources are being allocated in a way that maximizes total welfare in the economy. This also ensures that no one can be made better off without making someone else worse off, which is the definition of Pareto efficiency.

A Competitive Market with No Externalities Is Efficient When It