What must be true about a perfectly competitive market in equilibrium that is allocatively efficient?

Choose 1 answer:
(A) Producers have more surplus than consumers
(B) Deadweight loss is the highest it can be
(c) Total surplus equals deadweight loss
(D) Consumers have more surplus than producers
(E) Total surplus is the highest it can be

Question

What must be true about a perfectly competitive market in equilibrium that is allocatively efficient?

Choose 1 answer:
(A) Producers have more surplus than consumers
(B) Deadweight loss is the highest it can be
(c) Total surplus equals deadweight loss
(D) Consumers have more surplus than producers
(E) Total surplus is the highest it can be

Accepted Answer

∻Solution∻ ‖ a ⋮ Allocative Efficiency: In a perfectly competitive market in equilibrium, allocative efficiency occurs when the quantity of goods produced is such that the marginal benefit to consumers equals the marginal cost of production. This ensures that resources are allocated in the most efficient manner. ‖ ‖ b ⋮ Total Surplus: Total surplus is the sum of consumer surplus and producer surplus. In an allocatively efficient market, total surplus is maximized, meaning that the combined benefits to consumers and producers are at their highest possible level. ‖ ‖ c ⋮ Deadweight Loss: Deadweight loss represents the loss of total surplus that occurs when the market is not in equilibrium. In an allocatively efficient market, deadweight loss is zero because the market is producing at the optimal quantity where marginal benefit equals marginal cost. ‖ ‖ d ⋮ Answer Choice Analysis: - (A) Producers have more surplus than consumers: This is not necessarily true in an allocatively efficient market. - (B) Deadweight loss is the highest it can be: This is incorrect because deadweight loss should be zero in an allocatively efficient market. - (C) Total surplus equals deadweight loss: This is incorrect because total surplus should be maximized, not equal to deadweight loss. - (D) Consumers have more surplus than producers: This is not necessarily true in an allocatively efficient market. - (E) Total surplus is the highest it can be: This is correct because allocative efficiency ensures that total surplus is maximized. ‖ ∻Answer∻ ⚹ (E) Total surplus is the highest it can be ⚹ ∻Key Concept∻ ⚹ Allocative Efficiency ⚹ ∻Explanation∻ ⚹ In a perfectly competitive market in equilibrium that is allocatively efficient, total surplus is maximized, meaning that the combined benefits to consumers and producers are at their highest possible level. ⚹◊What impact does allocative efficiency have on consumer and producer surplus in a perfectly competitive market?⍭ Generate me a similar question◊

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