What economic conditions are necessary to achieve allocation efficiency under pure competition?
What will be an ideal response?
Allocation efficiency means that resources are distributed among firms such that a mix of products is produced that is most desired by society. The price of any product is society’s measure of its perceived marginal benefit from consumption of the product. The marginal cost measures the opportunity cost of the resources that were used to produce the product. Pure competition is evocatively efficient because price (P) equals marginal cost (MC). This equality means that society’s perceived marginal benefit from the consumption of the product just equals the opportunity cost of the resources used to produce the product.
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The best argument against monetarists' arguments that steady money growth would prevent fluctuations in inflation and unemployment is that:
a. the government has best control over fiscal policy and should focus on that. b. large fluctuations in the money supply cannot occur because the supply of money is limited. c. steady money growth does not necessarily mean steady aggregate demand if velocity is not stable. d. steady growth in the money supply percents fluctuations in output only if aggregate prices are constant.
Which of the following statements about a circular flow model is false?
A) Producers are buyers in the factor market and sellers in the product market. B) Households are neither buyers nor sellers in the input market. C) Producers are buyers in the factor market. D) Households are buyers in the product market.