Which of the following statements describes the way the pre-trade home equilibrium reflects the concepts of competitive markets?
A) The opportunity cost of good 1 is the ratio of labor productivity of good 1 to good 2
B) Prices of each good reflect their opportunity cost.
C) Wages are not equal for each good
D) The value of the marginal product of labor (MPL × P) differs for each good.

Question

Quizplus · Accepted Answer

Competitive markets ensure that prices reflect the opportunity cost of producing each good, which is the amount of other goods that must be given up to produce a unit of one good. In a pre-trade home equilibrium, the relative prices of each good are determined by their respective opportunity costs, and these prices lead to an efficient allocation of resources. Therefore, statement B correctly reflects the concept of competitive markets. Statements A, C, and D could be true in certain situations, but they do not directly relate to the way that the pre-trade home equilibrium reflects competitive markets.

Which of the Following Statements Describes the Way the Pre-Trade