Which of the following is true of a competitive market?

Question

Quizplus · Accepted Answer

Competitive markets yield efficient outcomes because producers are motivated to maximize their profits and consumers are motivated to maximize their utility. This leads to an equilibrium price and quantity where the marginal cost equals the marginal benefit, resulting in allocative efficiency. Additionally, competition drives innovation and reduces prices for consumers. However, the outcome of a competitive market may not necessarily be fair and equitable, as some individuals or groups may benefit more than others. Competitive markets do not necessarily allow consumers to gain at the expense of producers, as producers may still earn profits in a competitive market. Finally, while some producers may earn economic profits in the short run, these profits will typically attract new entrants, resulting in normal profits in the long run.

Which of the Following Is True of a Competitive Market